APH 10-K diff: FY 2023-12-31 → FY 2024-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+42 paragraphs −47 paragraphs ~42 changed
FY 2023-12-31 (earlier)
Item 1A. Risk Factors
The Company’s business, operations, financial condition, liquidity, results of operations and stock price can be negatively affected by many risk factors. Investors should carefully consider the risks described below and all other information in this Annual Report. The Company’s past financial performance, including historical trends, should not be considered a reliable indicator of future performance. 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 materialize and impair the Company’s business, operations, financial condition, liquidity, results of operations and/or stock price.
If actions taken by management to limit, monitor or control enterprise risk exposures are not successful, the Company’s business, operations, financial condition, liquidity and results of operations 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
The Company is exposed to political, economic, military and other risks related to operating in countries outside the United States, and changes in general economic conditions, geopolitical conditions, U.S. trade policies and other factors beyond the Company’s control may adversely impact its business and operating results.The Company’s operations and performance depend significantly on global, regional and U.S. economic and geopolitical conditions. During 2023, non-U.S. markets constituted approximately 65% of the Company’s net sales, with China constituting approximately 23% of the Company’s net sales. The Company employs nearly 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.
During the last few years there have also been significant changes to U.S. trade policies, sanctions, legislation, treaties and tariffs, including, but not limited to, trade policies and tariffs affecting China. These changes have, in certain cases, increased our costs of doing business. The imposition of additional tariffs or other trade barriers could increase our costs in certain markets and may cause our customers to find alternative sourcing or could make it more difficult for us to sell our products in some markets. Other countries where we operate or sell our products have changed, and may continue to change, their own policies on trade as well as business and foreign investment in their respective countries. For example, we have manufacturing facilities in certain jurisdictions that are authorized to operate under preferential duty and/or tariff programs that provide for reduced tariffs and/or eased import and export regulations and are subject to compliance with the terms of such programs, which have become stricter. Failure to comply with the terms of such programs could increase our manufacturing costs and adversely affect our business, operating results and financial condition. Additionally, it is possible that U.S. policy changes and uncertainty about such changes could increase market volatility and currency exchange rate fluctuations. As a result of these dynamics, we cannot predict the12
Table of Contentsimpact to our business of any future changes to the U.S.’s or other countries’ trading relationships or the impact of new laws or regulations adopted by the U.S. or other countries.In addition to the risks noted above, a number of other legal, economic and geopolitical factors both in the United States and abroad could have a material adverse effect on the Company’s business, operations, financial condition, liquidity and/or results of operations, such as:● a global or regional economic slowdown or recession in any of the Company’s end markets (or a prolonging or intensification of such a slowdown or recession), which could negatively affect the financial condition of our customers and result in reduced demand;
● postponement of customer spending, in response to tighter credit, inflationary pressures, financial market volatility and other global economic factors;● effects of significant changes in economic, monetary and/or fiscal policies in the United States and/or abroad, including interest rate changes by the U.S. Federal Reserve or other international central banking systems, foreign currency fluctuations, significant income tax changes and inflationary pressures;
● intergovernmental and other conflicts or actions, including, but not limited to, armed conflict, such as the ongoing military conflicts between Ukraine and Russia as well as Israel and Hamas, trade wars, cyberattacks and acts of terrorism or war;● 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;
● changes in exchange control regulations, including any government actions that prohibit, limit or increase the cost of paying a dividend or otherwise moving cash between the Company’s subsidiaries located in different countries;
● credit risks and other challenges in collecting accounts receivable; and
● changes in assumptions, such as discount rates, along with lower than expected investment returns and performance related to the Company’s benefit plans.
We may be negatively impacted by adverse public health developments, including epidemics and pandemics.
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, operations, financial condition, liquidity and results of operations. Beginning in early 2020 and continuing through 2022, the COVID-19 pandemic disrupted our offices and manufacturing facilities around the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers. These disruptions included government regulations that inhibited our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers. Future disruptions from similar harmful public health developments could have a material adverse impact on our business, operations, financial condition, liquidity and results of operations.
The Company and certain of its suppliers and customers have experienced difficulties obtaining certain raw materials and components, and the cost of certain of the Company’s raw materials and components is increasing.
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 and components. While the Company does not currently anticipate significant, broad-based difficulties in obtaining raw materials or components necessary for production, inflationary pressures and logistical challenges may impact the cost and availability of certain raw materials and components used by the Company and result in supply shortages for discrete raw materials or components, which could be further exacerbated by increased commodity prices and additional inflation. Moreover, the Company may not be able to pass along any increased raw material or component prices to its customers and may not be able to procure and obtain sufficient quantities of raw materials and components timely and at acceptable prices from our suppliers. 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 our13
Table of Contentsability to deliver products to our customers. The cost and availability of raw materials may fluctuate significantly due to external factors including, but not limited to, product scarcity, war or other armed conflict, logistical challenges, disruptions caused by climate change and adverse weather conditions, commodity market fluctuations, currency fluctuations, governmental policies and regulations such as trade tariffs and import restrictions, as well as pandemics and epidemics (as was the case with the COVID-19 pandemic), which may, in turn, negatively impact our results of operations and financial condition.Cybersecurity incidents affecting our information technology systems could disrupt business operations or cause the release of highly sensitive confidential or personal information, resulting in adverse impacts to our reputation and operating results and potentially leading to litigation and/or governmental investigations, fines and other penalties.
We rely on our information technology systems for critical operations and face numerous and evolving cybersecurity threats and techniques used to disrupt operations and gain unauthorized access to these systems. These threats may arise from diverse threat actors such as state-sponsored organizations and opportunistic hackers and hacktivists, as well as through diverse attack vectors, including, but not limited to, malware, social engineering/phishing, credential harvesting, ransomware, malfeasance by insiders, human or technological error and other increasingly sophisticated attacks. Cyberattacks continue to expand and evolve, making it difficult to detect and prevent such threats from impacting the Company. Globally, there continues to be an increased volume of cyber threats, ransomware attempts and social engineering attacks, such as phishing and impersonation, and attackers increasingly use tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence. In addition, the rise of artificial intelligence and machine learning has led to more sophisticated and deceptive attacks. Attackers can manipulate systems in new ways and more easily perform functions at scale. As a result, we may be unable to detect, investigate, remediate, or recover from future attacks or incidents, or avoid a material adverse impact to our business.
In addition, global remote working dynamics continue to present additional risk that threat actors will engage in social engineering (for example, phishing) and exploit vulnerabilities in corporate and non-corporate networks. Ransomware attacks have become easier to execute, and with the rise of ransomware as a service, it has become an increasingly popular business model to lease or sell ransomware variants to anyone willing to pay the fee.
There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully complied with or effective in protecting our information technology systems. The Company and third-party providers upon whom we may rely for certain information technology services have been, and expect to continue to be, a target of various cybersecurity attacks, including, but not limited to, ransomware attacks. While the impact of such attacks has not been material, future cybersecurity incidents could lead to unauthorized access to and potentially impair 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 misappropriation, destruction or corruption of critical data and confidential, personal, or proprietary information. Cybersecurity events could also result in the loss of or inability to access confidential information and critical business, financial or other data, and/or cause the release of highly sensitive confidential or personal information. 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. Our and key third-party information technology systems and infrastructure are susceptible to disruptions from cybersecurity incidents, ransomware attacks, security breaches, computer viruses, security vulnerabilities or “bugs” in software or hardware, outages, systems failures, natural disasters, adverse public health developments, or other catastrophic events, any of which could result in reputational damage that may cause the loss of existing or future customers, the loss of our intellectual property, the release of highly sensitive confidential or personal information, the inability to access critical data and other operational disruptions, litigation with third parties (including class actions) and/or governmental investigations and fines, among other things, which could have a material adverse effect on our business, financial condition and results of operations. Finally, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.
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, such as personal information. There is a risk of intrusion, cyberattacks 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 to14
Table of Contentsthird-party business partners. Those partners may also be subject to data intrusion or a cyberattack. Any compromise of the data could substantially disrupt our operations, impact future business opportunities, harm our customers, employees and other business partners, damage our reputation, violate applicable laws, regulations, policies and contractual obligations and subject us to potentially significant costs and liabilities, including litigation or other enforcement actions.The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. Privacy laws and regulations around the world including, for example, in the European Union (“EU”), People’s Republic of China, the state of California, and several other U.S. states, impose significant obligations for companies on how they collect, store, protect, process and transfer personal information and can impose significant fines for non-compliance. In addition, in March 2022, the U.S. enacted the Strengthening American Cybersecurity Act, which imposes cyber incident and ransomware attack response protocols for businesses operating in numerous core industry sectors of the U.S. economy. The potential for fines, penalties, and other related costs in the event of a breach of or non-compliance with any existing and forthcoming information security or privacy laws and requirements may have an adverse effect on our financial results. For further discussion of the Company’s risk management, strategy, and governance around cybersecurity, refer to Part I, Item 1C. Cybersecurity herein.The Company may be negatively impacted by extreme weather conditions and natural catastrophic events, including those caused or intensified by climate change and global warming.
From time to time, extreme weather conditions and natural disasters have negatively impacted, and may continue to negatively impact, portions of our operations, as well as the operations of our suppliers, vendors, customers and distributors. Such unpredictable weather conditions and natural disasters including, but not limited to, severe storms, earthquakes, fires, droughts, floods, hurricanes, tornadoes , and stronger and longer-lasting weather patterns, including heat waves and freezes and ambient temperature or precipitation changes, and their consequences and effects have, in the past, temporarily disrupted our business operations both in the United States and abroad. These events could cause some of the Company’s operations to suffer from supply chain disruptions and potential delays in fulfilling customer orders or order cancellations altogether, lost business and sales, increased costs, energy and water scarcity, changing costs or availability of insurance, and/or property damage or harm to our people, each and all of which could have an adverse effect on our business, operations, financial condition and results of operations.Increasing scrutiny and expectations regarding ESG matters could result in additional costs or risks or otherwise adversely impact our business.
Companies across industries continue to face increasing scrutiny from a variety of stakeholders related to their ESG and sustainability practices. Expectations regarding voluntary and potential mandatory ESG initiatives and disclosures may result in increased costs, changes in demand for certain products, enhanced compliance or disclosure obligations, or other adverse impacts to our business, financial condition or results of operations. In addition, an inability to receive or maintain favorable ESG ratings could negatively impact our reputation or impede our ability to compete as effectively to attract and retain employees or customers, which may adversely impact our operations. Unfavorable ESG ratings could also lead to increased negative investor sentiment towards us or our industry, which could negatively impact the share price of our Common Stock as well as our access to and cost of capital.
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”). 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 U.S. and foreign anti-corruption laws.15
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There can be no assurance that our policies and procedures designed for complying with applicable U.S. and international laws and regulations 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 can be positively or negatively affected by changes in 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 foreign currency restrictions and/or devaluations. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. There can be no assurance that any or all actions taken by the Company to mitigate currency risk, such as locating factories in the same country or region in which products are sold, hedging contracts, cost reduction and pricing actions or working capital management, will be fully effective in successfully managing currency risk. A significant and sudden decline in the value of any of the foreign currencies of the Company’s worldwide operations could have an adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The Company is dependent on attracting, recruiting, hiring and retaining skilled employees, including our various management teams.
Our performance is dependent on our ability to attract, recruit, hire and retain skilled personnel, including our executive and core management teams. Given the current inflationary wage environment and strong demand for skilled labor in many of the countries and regions in which we operate, the ability to identify and attract new talent, as well as retain existing talent, may prove to be difficult. It is possible that the current labor market could have an adverse effect on our ability to attract, recruit, hire and retain skilled employees, which in turn, could have an adverse effect on the Company’s business, financial condition and results of operations. In addition, our business could also be adversely impacted by the ongoing increases in labor costs, including wages and benefits.
RISKS RELATED TO OUR END MARKETS
The Company encounters competition in all areas of our 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. Rapid technological changes could also lead to the entry of new competitors of various 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.
The Company is dependent on end market dynamics to sell its products, particularly in the communications, automotive and defense end markets.
The Company is dependent on end market dynamics to sell its products, and its operating results could be adversely affected by cyclical and reduced demand in any of these markets. Approximately 37% of the Company’s 2023 net sales came from sales to the communications industry. Demand for products in these markets is generally subject to rapid technological change and/or capital spending by operators for constructing, rebuilding or upgrading their systems, all of which could be affected by a variety of factors, including general economic conditions, consolidation within the industry, the financial condition of operators and their access to financing, competition, technological developments, new legislation and regulation. Approximately 23% of the Company’s net sales came from the automotive industry. The automotive industry has historically experienced significant downturns during periods of deteriorating global or regional economic or credit conditions, or as a result of prolonged work stoppages or other disputes with labor unions. The communications and automotive end markets are also dominated by large customers that regularly exert price pressures on their suppliers, including the Company. Approximately 11% of the Company’s net sales came from sales to the defense end market. Accordingly, the Company’s sales are affected by changes in the defense budgets of the U.S. and16
Table of Contentsforeign governments, which are subject to political and budgetary fluctuations and constraints. Periodic downturns in any of our customers’ end markets can significantly reduce demand for certain of our products, which could have a material 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 numerous acquisitions in recent years, including 10 in 2023. 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 and deliver the financial benefits 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 certain limited cases, the Company has pursued indemnification claims against seller(s) of an acquired business or sought recovery under third party insurance policies for pre-acquisition liabilities, breaches of representations, warranties or covenants or for other reasons provided for in the relevant acquisition agreement or insurance policy. To the extent we pursue indemnification claims against such seller(s) or insurers, such seller(s) or insurers may successfully contest such claims and/or may not have the financial capacity to compensate us for such claims, or such claims may otherwise be difficult or impractical to enforce. We cannot predict or guarantee whether and to what extent anticipated cost savings, benefits, margin improvements and growth prospects will be achieved from recent or future acquisitions.
The Company may in the future incur goodwill and other intangible asset impairment charges.
On December 31, 2023, the total assets of the Company were $16.5 billion, which included $7.1 billion of goodwill (the excess of fair value of consideration paid over the fair value of net identifiable assets of businesses acquired) and $834.8 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 more 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 and senior notes contain certain requirements, which if breached, could have a material adverse effect on the Company.The second amended and restated credit agreement that governs our $2.5 billion unsecured credit facility (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 (“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. The Company also has similar financial and other covenants associated with its two-year, $750.0 million unsecured delayed draw term loan credit agreement (the “Term Loan”) entered into in April 2022. In addition, 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 and the Term Loan. Upon the occurrence of an event of default under the Revolving Credit Facility or the Term Loan, 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 indebtedness under the Revolving Credit Facility, the Term Loan and such other debt instruments. As of December 31, 2023, the Company had no borrowings outstanding under the Revolving Credit Facility, Term Loan, U.S. Commercial Paper Program and Euro Commercial Paper Program. However, the Company borrowed under the U.S.17
Table of ContentsCommercial Paper Program throughout much of 2023, and the Company may make additional borrowings under any of its debt instruments from time to time.In addition to these credit agreements, the Company’s various senior notes also impose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial requirements. While the Company is compliant with all such requirements as of December 31, 2023, there can be no assurance that the Company will remain in compliance with such requirements.
The Company relies on the global capital markets, and an inability to access those markets on favorable terms could adversely affect the Company’s results.
The Company has used the global capital markets to raise capital to invest in its business and make strategic acquisitions. The capital and credit markets have experienced significant volatility in the past. If general economic and capital market conditions deteriorate significantly, it could become more difficult to access capital to finance capital investments, acquisitions and other initiatives including dividends and share repurchases, which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. In addition, if the credit rating agencies that rate the Company’s debt were to downgrade the Company’s credit rating, 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, 2023, less than 1% of the Company’s outstanding borrowings were subject to floating interest rates.As a result of increases in the federal funds rate by the U.S. Federal Reserve beginning in early 2022 and through the middle of 2023, t he floating interest rates related to our U.S. Commercial Paper Program (as well as our Revolving Credit Facility and Term Loan, to the extent either are drawn upon in the future) have increased substantially over this same period, a trend that could continue into 2024 and potentially beyond. To the extent that interest rates related to this floating rate debt increase further and the Company borrows under any of these floating interest rate instruments in the future, interest expense and interest payments would increase. There can be no assurance that interest rates will not change significantly from current levels.
RISKS RELATED TO LEGAL AND REGULATORY MATTERS
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. and other governments, including laws and regulations governing reporting obligations, interactions with government officials, performance of government contracts, the use and treatment of 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. and other foreign governments or their 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, th e Company reached an agreement in August 2023 with the U.S. government related to an investigation of alleged violations by the Company of the civil False Claims Act. Although the Company did not admit to any liability under the terms of the settlement agreement, the Company agreed to pay the U.S. government a settlement amount, ending the government’s investigation and releasing the Company from further liability for the issues under investigation . The U.S. laws and regulations to which we are subject include, but are not limited to, the Export Administration Regulations, the Federal Acquisition Regulation, the False Claims Act, International Traffic in Arms Regulations, regulations from the Bureau of Alcohol, Tobacco and Firearms and the FCPA. Moreover, we are subject to a wide range of similar laws and regulations in other countries throughout the world. Failure, or the perceived 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, operations, financial condition, liquidity, and results of operations.
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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 our contracts are 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. 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, operations, financial condition, liquidity, and results of operations.
The Company must comply with complex U.S. governmental export and import controls as well as economic sanctions and trade embargoes.Certain of our products, including purchased components of such products, are subject to U.S. and non-U.S. export control laws and regulations, 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 non-U.S. economic sanctions and trade embargoes that restrict our ability to transact or deal with certain persons, countries, regions, and governments. 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 ongoing tensions between the U.S. and China. For example, in 2019, the U.S. government added certain of the Company’s customers based in China to the “Entity List” maintained by the U.S. Department of Commerce, which imposes additional restrictions on sales to such customers. Further, in 2022, the U.S. Commerce Department’s Bureau of Industry Security released new export control regulations that restrict the provision to China of certain technology, software, manufacturing equipment and commodities that are used to make certain advanced computing integrated circuits (“ICs”) and supercomputers. These changes include new restrictions on the ability of U.S. companies to provide certain services to any facility in China that manufactures certain advanced ICs. Although, to date, none of such restrictions have had 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, and such restrictions could further limit or prohibit the Company from selling its products or providing its services. In addition, we cannot ensure that our policies and procedures designed to maintain compliance with applicable rules and regulations will be effective in preventing instances of non-compliance. If we were to fail to comply with applicable export control restrictions (for example, by failing to obtain required export licensing), customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines, the incarceration of responsible employees and managers, reputational harm, 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.
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 in 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.On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act of 2022 (the “IRA”), a tax and spending package that introduces several tax-related provisions, including a 15% corporate alternative minimum tax (“CAMT”) on certain large corporations and a 1% excise tax on certain corporate stock repurchases. Companies will be required to reassess their valuation allowances for certain affected deferred tax assets in the period of enactment but will not need to remeasure deferred tax balances for the related tax accounting implications of the CAMT. Th e IRA provisions, which became effective for Amphenol beginning on January 1, 2023 , did not have a material impact on the Company during the year ended December 31, 2023. However, the full impact of these provisions in the future depends on several factors, including interpretive regulatory guidance, which has not yet been released.The Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework, known as Pillar Two, provides guidance for a global minimum tax. This guidance lays out a common approach for adopting the global minimum tax and enacting local legislation codifying the provisions that all 142 countries in the Inclusive Framework agreed to by consensus. The EU member states have agreed to adopt these rules in two stages with the first component effective on January 1, 2024, while the second component will be effective January 1, 2025. Non-EU19
Table of Contentscountries have enacted or are expected to enact legislation on a similar timeline. Certain countries in which we operate have already enacted legislation to adopt the Pillar Two framework, while several other countries are expected to also implement similar legislation with varying effective dates in the future. When and how this framework is adopted or enacted by the various countries in which we do business will increase tax complexity and may increase uncertainty and adversely affect our provision for income taxes in the U.S. and non-U.S. jurisdictions.Any future changes in tax laws, regulations, accounting standards for income taxes and/or other tax guidance, including related interpretations associated with the IRA or otherwise, 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.
We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others.
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, from time to time, we 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 laws concerning intellectual property, or the enforcement of such laws, 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 unpredictable. If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.
The intellectual property rights of others could inhibit our ability to introduce new products. Other companies hold patents on technologies used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios. We periodically receive notices from, or have lawsuits filed against us by, third parties claiming infringement, misappropriation or other misuse of their intellectual property rights and/or breach of our agreements with them. These third parties may include entities that do not have the capabilities to design, manufacture, or distribute products or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property through asserting claims of infringement and misuse. In addition, some foreign competitors may take advantage of the intellectual property laws in their home countries and the more favorable litigation and regulatory environment to our detriment. Third-party claims of infringement may result in loss of revenue, substantial costs or lead to monetary damages or injunctive relief against us.
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, voluntary or forced 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 expense s. 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 apply and, where insurance exists, the amount of insurance coverage may not be adequate to cover the total claims and liabilities. In some cases, particularly with respect to product warranty claims from customers, we self-insure against this risk, meaning that any product liability claims will likely have to be paid from Company funds and not by insurance. 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 our 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
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manufacture and/or sell our products. Certain operations of the Company are subject to locally enacted environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company 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. 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 in 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 .
The Company is subject to, and may continue to be subject to, incremental costs, risks and regulations associated with efforts to combat the negative effects of climate change.
There is increased public awareness regarding climate change. This increased focus has led to international treaties and agreements and legislative and regulatory efforts. In addition to the risks discussed under the risk factors titled “ The Company may be negatively impacted by extreme weather conditions and natural catastrophic events, including those caused or intensified by climate change and global warming ” and “ Increasing scrutiny and expectations regarding ESG matters could result in additional costs or risks or otherwise adversely impact our business ,” the Company may also be subject to larger, global climate change initiatives, laws, regulations or orders, such as any laws or regulations to implement the Paris Climate Agreement, which seek to reduce greenhouse gas (“GHG”) emissions. In addition to government requirements, our customers are also increasingly imposing climate-related requirements on their suppliers, including us. Any failure, or perceived failure, to comply with these requirements may result in reduced demand for our products, reputational harm, or other adverse impacts to our business.Given our global manufacturing presence, any future regulations relating to GHG emissions and/or other climate change-related laws and regulations, beyond initiatives already in process at the Company, could subject us to additional and/or unforeseen compliance costs and limitations, increased energy and raw material costs and incremental capital expenditure requirements. In addition, governmental bodies are increasingly adopting and considering adopting additional mandatory climate-related reporting obligations, and potentially GHG emissions reduction requirements, and these regulatory developments, to the extent we are subject to them, will likely result in increased corporate and operational general and administrative efforts and associated costs and expenses.There have been various new laws around the world that have been passed and will require additional ESG-related disclosure. For example, in Europe, the EU finalized the Corporate Sustainability Reporting Directive (“CSRD”), which introduces more prescriptive sustainability reporting requirements for EU companies as well as certain non-EU companies, and will apply to all in-scope companies by January 1, 2028. In the United States, the SEC has proposed climate-related disclosure rules that have not yet been enacted as of the date of this report, and certain states have begun to pass their own ESG-related laws. For example, on October 7, 2023, the governor of California signed and enacted into law two climate-related disclosure bills ( SB-253, Climate Corporate Data Accountability Act and SB-261, Greenhouse Gases: Climate-Related Financial Risk ), which will require compliance as early as 2026.Any future regulatory changes in any of the jurisdictions in which we operate could result in transition risks to the Company, including, but not limited to: (i) the nature and timing of any requirement to lower GHG emissions and adopt more energy-efficient energy use, which could result in changes or disruptions to the way the Company operates, (ii) financial risks where the compliance with such regulations requires unforeseen capital expenditures and becomes costly or financially burdensome, (iii) legal risks associated with the failure to adapt to or comply with future climate change-related regulations, (iv) risks of climate litigation associated with our disclosures and/or operations; (v) risks associated with the implementation of any new technologies required to comply with such regulations, which could impede our ability to develop new products, meet customer and market demand or compete on pricing and quality in the market, and/or (vi) reputational risks associated with our customers’ and investors’ perceptions of the Company and their preferences for maintaining relationships with companies with lower emissions, all of which could harm our reputation in the marketplace.
FY 2024-12-31 (later)
Item 1A. Risk Factors
The Company’s business, operations, financial condition, liquidity, results of operations and stock price can be negatively affected by many risk factors. Investors should carefully consider the risks described below and all other information in this Annual Report. The Company’s past financial performance, including historical trends, should not be considered a reliable indicator of future performance. 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 materialize and impair the Company’s business, operations, financial condition, liquidity, results of operations and/or stock price.
If actions taken by management to limit, monitor or control enterprise risk exposures are not successful, the Company’s business, operations, financial condition, liquidity and results of operations 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
The Company is exposed to political, economic, military and other risks related to operating in countries outside the United States, and changes in general economic conditions, geopolitical conditions, U.S. and other countries’ trade policies and other factors beyond the Company’s control may adversely impact its business and operating results.The Company’s operations and performance depend significantly on global, regional and U.S. economic and geopolitical conditions. During 2024, non-U.S. markets constituted approximately 65% of the Company’s net sales, with China constituting approximately 22% of the Company’s net sales. The Company employs nearly 90% of its12
Table of Contentsworkforce 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.During the last few years, there have also been significant changes to U.S. and other countries’ trade policies, export control laws, sanctions, legislation, treaties and tariffs, including, but not limited to, U.S. trade policies and tariffs affecting China and certain of the other countries in which we operate. These changes have, in certain cases, increased our costs of doing business. There is significant uncertainty about the future of trade relationships around the world, including potential changes to trade laws and regulations, trade policies, and tariffs. For example, effective February 4, 2025, the U.S. government implemented an additional 10% tariff on goods being imported from China and, in response, the Chinese government implemented a 15% tariff on certain goods being imported into China from the U.S. The U.S. has also announced additional 25% tariffs for goods imported into the U.S. from Mexico and Canada beginning in March 2025. We cannot predict what additional actions may ultimately be taken by the U.S. or other governments with respect to tariffs or trade relations, what products may be subject to such actions (including subject to U.S. export control restrictions), or what actions may be taken by the other countries in retaliation. The imposition of additional tariffs or other trade barriers could increase our costs in certain markets and may cause our customers to find alternative sourcing or could make it more difficult for us to sell our products in some markets or to some customers, which may result in declines in our sales and operating income. We have manufacturing facilities in certain jurisdictions that are authorized to operate under preferential duty and/or tariff programs that provide for reduced tariffs and/or eased import and export regulations and are subject to compliance with the terms of such programs, which have become stricter. Failure to comply with the terms of such programs could increase our manufacturing costs and adversely affect our business, operating results and financial condition. Additionally, it is possible that government policy changes and uncertainty about such changes could increase market volatility and currency exchange rate fluctuations. As a result of these dynamics, we cannot predict the impact to our business of any future changes to the U.S.’s or other countries’ trading relationships or the impact of new laws or regulations adopted by the U.S. or other countries.In addition to the risks noted above, a number of other legal, economic and geopolitical factors could have a material adverse effect on the Company’s business, operations, financial condition, liquidity and/or results of operations, such as:
● a global or regional economic slowdown or recession in any of the Company’s end markets (or a prolonging or intensification of such a slowdown or recession), which could negatively affect the financial condition of our customers and result in reduced demand;
● postponement of customer spending, in response to tighter credit, inflationary pressures, financial market volatility and other global economic factors;● effects of significant changes in economic, monetary and/or fiscal policies, including interest rate changes by the U.S. Federal Reserve or other international central banking systems, foreign currency fluctuations, significant income tax changes and inflationary pressures;
● intergovernmental and other conflicts or actions, including, but not limited to, armed conflict, such as the ongoing military conflicts between Ukraine and Russia, as well as between Israel and its adversaries in the Middle East, trade wars, cyberattacks and acts of terrorism or war;● 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;
● changes in exchange control regulations, including any government actions that prohibit, limit or increase the cost of paying a dividend or otherwise moving cash between the Company’s subsidiaries located in different countries;
● credit risks and other challenges in collecting accounts receivable; and
● changes in assumptions, such as discount rates, along with lower than expected investment returns and performance related to the Company’s benefit plans.
We may be negatively impacted by adverse public health developments, including epidemics and pandemics.
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, operations, financial condition, liquidity and results of operations. This was particularly evident during the COVID-19 pandemic, which resulted in disruptions to our offices13
Table of Contentsand manufacturing facilities around the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers. These disruptions included government regulations that inhibited our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers. Future disruptions from similar harmful public health developments could have a material adverse impact on our business, operations, financial condition, liquidity and results of operations.The Company and certain of its suppliers and customers have experienced, and may in the future experience, difficulties obtaining certain raw materials and components, and the cost of certain of the Company’s raw materials and components may increase.
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 and components. In the past, prices for these and certain other basic materials have experienced significant volatility. While the Company does not currently anticipate significant, broad-based difficulties in obtaining raw materials or components necessary for production, it has, from time to time, experienced certain difficulties, and inflationary pressures and increased commodity prices may impact the cost and availability of certain raw materials and components used by the Company and result in supply shortages for discrete raw materials or components. Moreover, the Company may not be able to pass along any increased raw material or component prices to its customers and may not be able to procure and obtain sufficient quantities of raw materials and components in a timely manner and at acceptable prices from our suppliers. 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. The cost and availability of raw materials may fluctuate significantly due to external factors including, but not limited to, product scarcity, war or other armed conflict, logistical challenges, disruptions caused by climate change and adverse weather conditions, commodity market fluctuations, currency fluctuations, governmental policies and regulations such as trade tariffs and import restrictions, as well as pandemics and epidemics, which may, in turn, negatively impact our results of operations and financial condition.
Cybersecurity incidents affecting our information technology systems could disrupt business operations or cause the release of highly sensitive confidential or personal information, resulting in adverse impacts to our reputation and operating results and potentially leading to litigation and/or governmental investigations, fines and other penalties.
We rely on information technology systems provided by third-party providers and our own information technology systems for critical operations and face numerous and evolving cybersecurity threats and techniques used to disrupt operations and gain unauthorized access to these systems. These threats may arise from diverse threat actors such as state-sponsored organizations and opportunistic hackers and hacktivists, as well as through diverse attack vectors, including, but not limited to, malware, social engineering/phishing, credential harvesting, ransomware, malfeasance by insiders, human or technological error and other increasingly sophisticated attacks. Cyberattacks continue to expand and evolve, making it difficult to detect and prevent such threats from impacting the Company. Globally, there continues to be an elevated volume of cyber threats, exploitation of previously unknown software vulnerabilities, ransomware attempts and social engineering attacks, such as phishing and impersonation, and attackers increasingly use tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence. The proliferation of Internet of Things (“IoT”) devices and Operational Technology (“OT”) systems has expanded the potential points of entry for an unauthorized user to access a system or network. Threat actors are targeting IoT and OT systems to disrupt critical infrastructure or gain lateral access to corporate networks. In addition, the rise of AI and machine learning has led to more sophisticated and deceptive attacks. Cybercriminals are increasingly using AI-generated deepfake videos, audio and text to deceive individuals and organizations. These attacks can be used for impersonation in social engineering and fraud. Attackers can manipulate systems in new ways and more easily perform functions at scale. As a result, we may be unable to detect, investigate, remediate, or recover from future attacks or incidents, or avoid a material adverse impact to our business.
In addition, global remote working dynamics continue to present additional risk that threat actors will engage in social engineering (for example, phishing) and exploit vulnerabilities in corporate and non-corporate networks. Ransomware attacks have become easier to execute, and with the rise of ransomware as a service, it has become an increasingly popular business model to lease or sell ransomware variants to anyone willing to pay the fee.
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Table of ContentsThere can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully complied with or effective in protecting our information technology systems. The Company and third-party providers upon whom we may rely for certain information technology services have been, and expect to continue to be, a target of various cybersecurity attacks, including, but not limited to, ransomware attacks, phishing and other sophisticated threats. While the impact of previous attacks has not been material, future cybersecurity incidents could lead to unauthorized access to and potentially impair 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 misappropriation, destruction or corruption of critical data and confidential, personal, or proprietary information. Cybersecurity events could also result in the loss of or inability to access confidential information and critical business, financial or other data, and/or cause the release of highly sensitive confidential or personal information. 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. Our and key third-party information technology systems and infrastructure are susceptible to disruptions from cybersecurity incidents, ransomware attacks, security breaches, computer viruses, security vulnerabilities or “bugs” in software or hardware, outages, systems failures, natural disasters, adverse public health developments, or other catastrophic events, any of which could result in reputational damage that may cause the loss of existing or future customers, the loss of our intellectual property, the release of highly sensitive confidential or personal information, the inability to access critical data and other operational disruptions, litigation with third parties (including class actions) and/or governmental investigations, fines and other penalties, among other things, which could have a material adverse effect on our business, financial condition and results of operations. Finally, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.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, such as personal information. There is a risk of intrusion, cyberattacks or tampering that could compromise the integrity and privacy of this data or make the data inaccessible to us. In addition, in certain cases, we outsource to third-party business partners. Those partners may also be subject to data intrusion or a cyberattack. Any compromise of the data could substantially disrupt our operations, impact future business opportunities, harm our customers, employees and other business partners, damage our reputation, violate applicable laws, regulations, policies and contractual obligations and subject us to potentially significant costs and liabilities, including litigation or other enforcement actions.The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. Privacy laws and regulations around the world including, for example, in the European Union (“EU”), People’s Republic of China, the state of California, and several other U.S. states, impose significant obligations for companies on how they collect, store, protect, process and transfer personal information and can impose significant fines for non-compliance. The potential for fines, penalties and other related costs in the event of a breach of or non-compliance with any existing and forthcoming information security or privacy laws and requirements may have an adverse effect on our financial results. For further discussion of the Company’s risk management, strategy, and governance around cybersecurity, refer to Part I, Item 1C. Cybersecurity herein.
The Company may be negatively impacted by extreme weather conditions and natural catastrophic events, including those caused or intensified by climate change and global warming.
From time to time, extreme weather conditions and natural disasters have negatively impacted, and may continue to negatively impact, portions of our operations, as well as the operations of our suppliers, vendors, customers and distributors. Such unpredictable weather conditions and natural disasters including, but not limited to, severe storms, earthquakes, fires, droughts, floods, hurricanes, tornadoes , and stronger and longer-lasting weather patterns, including heat waves and freezes and ambient temperature or precipitation changes, and their consequences and effects have, in the past, temporarily disrupted our business operations both in the United States and abroad. Climate change may exacerbate certain such events and may also contribute to other changes that could also adversely impact our operations. These events could cause some of the Company’s operations to suffer from supply chain disruptions and potential delays in fulfilling customer orders or order cancellations altogether, lost business and sales, increased costs, energy and water scarcity, changing costs or availability of insurance, and/or property damage or harm to our people, each and all of which could have an adverse effect on our business, operations, financial condition and results of operations.15
Table of ContentsOur 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 anti-corruption 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”). 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 U.S. and foreign anti-corruption laws.There can be no assurance that our policies and procedures designed for complying with applicable U.S. and foreign laws and regulations 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 can be positively or negatively affected by changes in 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 foreign currency restrictions and/or devaluations. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. There can be no assurance that any or all actions taken by the Company to mitigate currency risk, such as locating factories in the same country or region in which products are sold, hedging contracts, cost reduction and pricing actions or working capital management, will be fully effective in successfully managing currency risk. A significant and sudden decline in the value of any of the foreign currencies of the Company’s worldwide operations could have an adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The Company is dependent on attracting, recruiting, hiring and retaining skilled employees, including our various management teams.
Our performance is dependent on our ability to attract, recruit, hire and retain skilled personnel, including our various management teams. It is possible that scarce labor market conditions, which the Company has experienced from time to time, could have an adverse effect on our ability to attract, recruit, hire and retain skilled employees, which in turn, could have an adverse effect on the Company’s business, financial condition and results of operations. In addition, our business could also be adversely impacted by any ongoing increases in labor costs, including wages and benefits.
RISKS RELATED TO OUR END MARKETS
The Company encounters competition in all areas of our 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. Rapid technological changes could also lead to the entry of new competitors of various 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.
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Table of ContentsThe Company is dependent on end market dynamics to sell its products, and some of the Company’s end markets are subject to cyclical and at times rapid periods of reduced demand.The Company is dependent on end market dynamics to sell its products, and its operating results could be adversely affected by cyclical and at times rapid periods of reduced demand in any of its end markets. Demand for products can be subject to rapid changes arising from a wide variety of factors, including new technology developments, changes in general economic conditions, consolidation within an industry, changes in access to financing, competition, new legislation and regulation, prolonged work stoppages or other disputes with labor unions and governmental budgetary constraints, among many other factors. Periodic downturns in any of our customers’ end markets can significantly reduce demand for certain of our products, which could have a material 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 numerous acquisitions in recent years, including two in 2024 and 10 in 2023. 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 and deliver the financial benefits expected. In addition, the Company may not be able to close acquisitions as anticipated, or at all. 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 certain limited cases, the Company has pursued indemnification claims against seller(s) of an acquired business or sought recovery under third party insurance policies for pre-acquisition liabilities, breaches of representations, warranties or covenants or for other reasons provided for in the relevant acquisition agreement or insurance policy. To the extent we pursue indemnification claims against such seller(s) or insurers, such seller(s) or insurers may successfully contest such claims and/or may not have the financial capacity to compensate us for such claims, or such claims may otherwise be difficult or impractical to enforce. We cannot predict or guarantee whether and to what extent anticipated cost savings, benefits, margin improvements and growth prospects will be achieved from recent or future acquisitions.
The Company may in the future incur goodwill and other intangible asset impairment charges.
On December 31, 2024, the total assets of the Company were $21.4 billion, which included $8.2 billion of goodwill (the excess of fair value of consideration paid over the fair value of net identifiable assets of businesses acquired) and $1.2 billion 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 more 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 agreement and senior notes contain certain requirements, which if breached, could have a material adverse effect on the Company.The third amended and restated credit agreement governs our $3.0 billion unsecured revolving credit facility (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 (“Euro Commercial Paper Program”, and together with the U.S. Commercial Paper Program, “Commercial Paper Programs”). The Revolving Credit Facility 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. 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 those17
Table of Contentstests. 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 the Revolving Credit Facility, 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 indebtedness under the Revolving Credit Facility and such other debt instruments. As of December 31, 2024, the Company had no borrowings outstanding under the Revolving Credit Facility, U.S. Commercial Paper Program and Euro Commercial Paper Program. However, the Company borrowed under the U.S. Commercial Paper Program throughout much of 2024, and the Company may make additional borrowings under any of its debt instruments from time to time.In addition to the Revolving Credit Facility, the Company’s various senior notes, some of which were issued during 2024, also impose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial requirements. While the Company is compliant with all such requirements as of December 31, 2024, there can be no assurance that the Company will remain in compliance with such requirements.
The Company relies on the global capital markets, and an inability to access those markets on favorable terms could adversely affect the Company’s results.
The Company has used the global capital markets to raise capital to invest in its business and make strategic acquisitions. The capital and credit markets have experienced significant volatility in the past. If general economic and capital market conditions deteriorate significantly, it could become more difficult to access capital to finance capital investments, acquisitions and other initiatives including dividends and share repurchases, which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. In addition, if the credit rating agencies that rate the Company’s debt were to downgrade the Company’s credit rating, 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, 2024, less than 1% of the Company’s outstanding borrowings were subject to floating interest rates. To the extent that interest rates change related to floating rate debt and the Company borrows under any of our floating rate debt instruments in the future (Commercial Paper Programs as well as our Revolving Credit Facility), our interest expense and interest payments will be impacted accordingly. There can be no assurance that interest rates will not change significantly from current levels.RISKS RELATED TO LEGAL AND REGULATORY MATTERS
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. and other governments, including laws and regulations governing reporting obligations, interactions with government officials, performance of government contracts, the use and treatment of 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. and other foreign governments or their 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. The U.S. laws and regulations to which we are subject include, but are not limited to, the Export Administration Regulations, the Federal Acquisition Regulation, the False Claims Act, International Traffic in Arms Regulations, regulations from the Bureau of Alcohol, Tobacco and Firearms and the FCPA. Moreover, we are subject to a wide range of similar laws and regulations in other countries throughout the world. Failure, or the perceived 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, operations, financial condition, liquidity, and results of operations.
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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 our contracts are 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. 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, operations, financial condition, liquidity, and results of operations.
The Company must comply with complex export and import controls as well as economic sanctions and trade embargoes imposed by the United States government and other countries.Certain of our products, including purchased components of such products, are subject to U.S. and non-U.S. export control laws and regulations, 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 non-U.S. economic sanctions and trade embargoes that restrict our ability to transact or deal with certain persons, countries, regions, and governments. These laws and regulations are complex, may change frequently and without prior notice, have generally become more stringent over time and have intensified under recent U.S. administrations, especially in light of ongoing tensions between the U.S. and China, as well as other countries. For example, in 2019, the U.S. government added certain companies based in China to the “Entity List” maintained by the U.S. Department of Commerce, which imposes additional restrictions on sales to such companies. Since 2019, numerous other companies have been added to that list. Further, in 2022, the U.S. Commerce Department’s Bureau of Industry Security (“BIS”) released new export control regulations that restrict the provision to China of certain technology, software, manufacturing equipment and commodities that are used to make certain advanced computing integrated circuits (“ICs”) and supercomputers. These changes include new restrictions on the ability of U.S. companies to provide certain services to any facility in China that manufactures certain advanced ICs. Since 2022, numerous other related rules and regulations have been implemented by BIS. In response to these regulations, the Chinese government has implemented its own set of import and export rules and regulations and added certain U.S.-based companies to the Chinese government’s “Unreliable Entity List”, which imposes additional restrictions on such companies. Although, to date, none of such restrictions have had a material adverse effect on the Company’s business, financial condition and results of operations, the U.S. and Chinese governments have the power to place even greater restrictions, and such restrictions could further limit or prohibit the Company from selling its products or providing its services. In addition, we cannot ensure that our policies and procedures designed to maintain compliance with applicable rules and regulations will be effective in preventing instances of non-compliance. If we were to fail to comply with applicable export control restrictions (for example, by failing to obtain required export licensing), customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines, the incarceration of responsible employees and managers, reputational harm, 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.
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 all jurisdictions in which it operates, including the Company’s two largest markets, the U.S. and China. Any future examinations, changes in tax laws, regulations, accounting standards for income taxes and/or other tax guidance 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 Inflation Reduction Act of 2022 (the “IRA”), a tax and spending package that introduced several tax-related provisions, including a 15% corporate alternative minimum tax (“CAMT”) on certain large corporations and a 1% excise tax on certain corporate stock repurchases, was enacted into law in 2022. Companies were required to reassess their valuation allowances for certain affected deferred tax assets in the period of enactment but did not need to remeasure deferred tax balances for the related tax accounting implications of the CAMT. Th e IRA provisions, which became effective for Amphenol beginning on January 1, 2023 , did not have a material impact on the Company during the years ended December 31, 2024 and 2023. However, the full impact of these provisions in the future depends on several factors, including interpretive regulatory guidance, which has not yet been released.19
Table of ContentsThe Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework, known as Pillar Two, provides guidance for a global minimum tax. This guidance lays out a common approach for adopting the global minimum tax and enacting local legislation codifying the provisions that all 142 countries in the Inclusive Framework agreed to by consensus. The EU member states have agreed to adopt these rules in two stages. The first component became effective on January 1, 2024, and the second component became effective on January 1, 2025. Non-EU countries have enacted or are expected to enact legislation on a similar timeline. Certain countries in which we operate have already enacted legislation to adopt the Pillar Two framework, while several other countries are expected to also implement similar legislation with varying effective dates in the future. When and how this framework is adopted or enacted by the various countries in which we do business will increase tax complexity and may increase uncertainty and adversely affect our provision for income taxes in the U.S. and non-U.S. jurisdictions.We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others.
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, from time to time, we 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 laws concerning intellectual property, or the enforcement of such laws, 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 unpredictable. If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.
The intellectual property rights of others could inhibit our ability to introduce new products. Other companies hold patents on technologies used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios. We periodically receive notices from, or have lawsuits filed against us by, third parties claiming infringement, misappropriation or other misuse of their intellectual property rights and/or breach of our agreements with them. These third parties may include entities that do not have the capabilities to design, manufacture, or distribute products or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property through asserting claims of infringement and misuse. In addition, some foreign competitors may take advantage of the intellectual property laws in their home countries and the more favorable litigation and regulatory environment to our detriment. Third-party claims of infringement may result in loss of revenue, substantial costs or lead to monetary damages or injunctive relief against us.
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, voluntary or forced 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 expense s. These matters could also damage our reputation, harm our relationships with customers or negatively affect product demand.
The insurance coverages that the Company maintains may not apply to all types of claims and proceedings, and, where insurance exists, the amount of insurance coverage may not be adequate to cover the total claims and liabilities. In some cases, particularly with respect to product warranty claims from customers, we self-insure against this risk, meaning that any product liability claims will likely have to be paid from Company funds and not by insurance. 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 our 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
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manufacture and/or sell our products. Certain operations of the Company are subject to locally enacted environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company 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. 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 in 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 .
The Company is subject to, and may continue to be subject to, incremental costs, risks and regulations associated with efforts to combat the negative effects of climate change.
There is increased public awareness regarding climate change. This increased focus has led to certain international treaties and agreements and legislative and regulatory efforts. In addition to the risks discussed under the risk factor titled “ The Company may be negatively impacted by extreme weather conditions and natural catastrophic events, including those caused or intensified by climate change and global warming, ” the Company may also be subject to larger, global climate change initiatives, laws, regulations or orders which seek to reduce greenhouse gas (“GHG”) emissions. In addition to government requirements, certain of our customers are also imposing climate-related requirements on their suppliers, including us. Any failure, or perceived failure, to comply with these requirements may result in reduced demand for our products, reputational harm, or other adverse impacts to our business.Given our global manufacturing presence, any future regulations relating to GHG emissions and/or other climate change-related laws and regulations, beyond initiatives already in process at the Company, could subject us to additional and/or unforeseen compliance costs and limitations, increased energy and raw material costs and incremental capital expenditure requirements. In addition, certain governmental bodies have adopted, and are considering adopting additional, mandatory climate-related reporting obligations, and potentially GHG emissions reduction requirements, and these regulatory developments, to the extent we are subject to them, will likely result in increased corporate and operational general and administrative efforts and associated costs and expenses.In recent years, both U.S. and foreign regulations have evolved, and there have been various new laws around the world that have been passed and will require additional ESG-related disclosure. For example, in Europe, the EU finalized the Corporate Sustainability Reporting Directive, which introduces more prescriptive sustainability reporting requirements for EU companies as well as certain non-EU companies. In March 2024, in the U.S., the SEC issued a new rule (Final Rule 33-11275 : The Enhancement and Standardization of Climate-Related Disclosures for Investors ), which mandates certain climate- and emissions-related disclosure and financial statement requirements that SEC registrants will be required to comply with in their public filings. Although the SEC issued an order staying the new rule in April 2024 pending litigation challenging the new rule, the Company continues to review, evaluate and implement the necessary processes in order to comply with this new rule. The Company’s adoption of and compliance with this new rule could result in additional costs to the Company or other adverse impacts to our business, financial condition or results of operations. This new SEC rule follows actions from certain U.S. states that continue to propose and/or pass their own ESG-related laws, certain of which came into effect in the last few years. For example, on October 7, 2023, the governor of California signed and enacted into law two climate-related disclosure bills ( Senate Bill-253, Climate Corporate Data Accountability Act and Senate Bill-261, Greenhouse Gases: Climate-Related Financial Risk ), which will require compliance as early as 2026. Such laws are not uniform and may be inconsistently applied, which can increase the complexity and cost of compliance as well as any associated litigation or enforcement risks.In addition to the requirement to comply with these enacted laws and regulations and other potential mandatory ESG requirements, any future regulatory changes in any of the jurisdictions in which we operate, in addition to those already enacted, could result in transition risks to the Company, including, but not limited to: (i) the nature and timing of any requirement to lower GHG emissions and adopt more energy-efficient energy use, which could result in changes or disruptions to the way the Company operates, (ii) financial risks where the compliance with such regulations requires unforeseen capital expenditures and becomes costly or financially burdensome, (iii) legal risks associated with the failure to adapt to or comply with future climate change-related regulations, (iv) risks of climate litigation associated with our disclosures and/or operations; (v) risks associated with the implementation of any new technologies required to comply with such regulations, which could impede our ability to develop new products, meet customer and market demand or compete on pricing and quality in the market, and/or (vi) reputational risks associated with our customers’
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and investors’ perceptions of the Company and their preferences for maintaining relationships with companies with lower emissions, all of which could harm our reputation in the marketplace.
Item 7 · Management's Discussion & Analysis
+220 paragraphs −202 paragraphs ~202 changed
FY 2023-12-31 (earlier)
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 financial condition and results of operations for the years ended December 31, 2023, 2022 and 2021 has been derived from and should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our,” or “us”). The Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”). Any references to the Company’s results in this Item 7 are specifically to our continuing operations only and exclude discontinued operations, unless otherwise noted. The following discussion and analysis also includes references to certain non-GAAP financial measures, which are defined in the “Non-GAAP Financial Measures” section below, including “Constant Currency Net Sales Growth” and “Organic Net Sales Growth”. For purposes of the following discussion, the terms “constant currencies” and “organically” have the same meaning, respectively, as these aforementioned non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” within this Item 7 for more information, including our reasons for including non-GAAP financial measures and material limitations with respect to the usefulness of the measures.
In addition to historical information, the following discussion and analysis also contains certain forward-looking statements that are subject to risks and uncertainties, including but not limited to the risk factors described in Part I, Item 1A. Risk Factors 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 (“Annual Report”).
Overview
General
Amphenol is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. In 2023, approximately 65% 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
● defense and commercial aerospace applications.
The Company’s products are used in a wide variety of applications by a broad array of customers around the world. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. For many years, customers have generally been consolidating their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining geographic flexibility and 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, while at the same time offering a level of resiliency and diversification against local risks and challenges that may emerge in any single geography.
26Table of ContentsReportable Business Segments
The Company aligns its businesses into the following three reportable business segments:
● Harsh Environment Solutions – the Harsh Environment Solutions segment designs, manufactures and markets a broad range of ruggedized interconnect products, including connectors and interconnect systems, printed circuits and printed circuit assemblies and other products for use in the industrial, defense, commercial aerospace, automotive, mobile networks and information technology and data communications end markets.● Communications Solutions – the Communications Solutions segment designs, manufactures and markets a broad range of connector and interconnect systems, including high speed, radio frequency, power, fiber optic and other products, together with antennas, for use in the information technology and data communications, mobile devices, industrial, mobile networks, broadband communications, automotive, commercial aerospace and defense end markets.
● Interconnect and Sensor Systems – the Interconnect and Sensor Systems segment designs, manufactures and markets a broad range of sensors, sensor-based systems, connectors and value-add interconnect systems used in the automotive, industrial, information technology and data communications, mobile networks, defense and commercial aerospace end markets.
This alignment reinforces the Company’s entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability of Amphenol’s business for the future. F or further details related to the Company’s reportable business segments, refer to Note 13 of the Notes to Consolidated Financial Statements herein.
Strategy
The Company’s strategy is to provide our customers with comprehensive design capabilities, a broad selection of products and a high level of quality and 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.
The Company’s strategic objective is to further enhance its position in its served markets by pursuing the following success factors:
● Pursue broad market diversification;
● Develop high-technology performance-enhancing solutions;
● Expand global presence;
● Control costs;
● Pursue strategic acquisitions and investments; and
● Foster collaborative, entrepreneurial management.
In 2023 , the Company reported net sales and operating income of $12,554.7 and $2,559.6, respectively, each representing a decrease of 1% from 2022, while net income from continuing operations attributable to Amphenol Corporation of $1,928.0 represented an increase of 1% from 2022. In 2023, the Company’s net income from continuing operations attributable to Amphenol Corporation was impacted by (a) excess tax benefits of $82.4 related to stock-based compensation resulting from stock option exercises and (b) the gain of $5.4 on a bargain purchase acquisition that closed in the second quarter of 2023, partially offset by (c) acquisition-related expenses of $34.6 ($30.2 after-tax) comprised primarily of external transaction costs, as well as the amortization of $12.4 related to the value associated with acquired backlog resulting from three of the acquisitions that closed in 2023 . In 2022, the Company’s net income from continuing operations attributable to Amphenol Corporation was impacted by (a) excess tax benefits of $56.0 related to stock-based compensation resulting from stock option exercises, partially offset by (b) acquisition-related expenses of $21.5 ($18.4 after-tax) comprised primarily of the amortization related to the value associated with acquired backlog resulting from two acquisitions that closed in 2022, along with external transaction costs. Excluding the effects of these items, Adjusted Operating Income decreased by 1%, while Adjusted Net Income from continuing operations attributable to Amphenol Corporation increased slightly in 2023 compared to 2022. Adjusted Operating Income and Adjusted Net
27Table of ContentsIncome from continuing operations attributable to Amphenol Corporation are both non-GAAP financial measures, each as defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7. 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 net cash provided by operating activities from continuing operations (“Operating Cash Flow”). The Company uses Operating Cash Flow to fund capital expenditures and acquisitions, repurchase shares of the Company’s Class A Common Stock (“Common Stock”), pay dividends and reduce indebtedness. In 2023, the Company generated Operating Cash Flow of $2,528.7 and Free Cash Flow of $2,159.9, compared to Operating Cash Flow of $2,174.6 and Free Cash Flow of $1,796.4 in 2022. 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.
Inflation Reduction Act of 2022
On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act of 2022 (the “IRA”), a tax and spending package that introduces several tax-related provisions, including a 15% corporate alternative minimum tax (“CAMT”) on certain large corporations and a 1% excise tax on certain corporate stock repurchases. Companies will be required to reassess their valuation allowances for certain affected deferred tax assets in the period of enactment but will not need to remeasure deferred tax balances for the related tax accounting implications of the CAMT. The IRA provisions, which became effective for Amphenol beginning on January 1, 2023, did not have a material impact on the Company during the year ended December 31, 2023. While the full impact of these provisions in the future depends on several factors, including interpretive regulatory guidance, which has not yet been released, the Company does not currently believe that the provisions of the IRA, including several other non-tax related provisions, will have a material impact on its financial condition, results of operations, liquidity and cash flows.
Pillar Two Framework
The Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework, known as Pillar Two, provides guidance for a global minimum tax. This guidance lays out a common approach for adopting the global minimum tax and enacting local legislation codifying the provisions that all 142 countries in the Inclusive Framework agreed to by consensus. The European Union (“EU”) member states have agreed to adopt these rules in two stages with the first component effective on January 1, 2024, while the second component will be effective January 1, 2025. Non-EU countries have enacted or are expected to enact legislation on a similar timeline. Certain countries in which we operate have already enacted legislation to adopt the Pillar Two framework, while several other countries are expected to also implement similar legislation with varying effective dates in the future. When and how this framework is adopted or enacted by the various countries in which we do business will increase tax complexity and may increase uncertainty and adversely affect our provision for income taxes in the U.S. and non-U.S. jurisdictions. The Company has done a preliminary review of currently enacted legislation and does not expect the initial implementation to materially impact future results. However, the Company will continue to evaluate the potential impact of Pillar Two on the Company and its future results, as additional countries adopt legislation and issue individual guidance on their enacted legislation.28Table of Contents
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,
2023
20222021Net sales
100.0
%
100.0
%
100.0
%
Cost of sales67.5
68.1
68.7
Acquisition-related expenses0.3
0.2
0.6
Selling, general and administrative expenses11.9
11.3
11.3
Operating income20.4
20.5
19.4
Interest expense(1.1)
(1.0)
(1.1)
Gain on bargain purchase acquisition
—
—
—
Other income (expense), net0.2
0.1
—Income from continuing operations before income taxes19.6
19.5
18.3
Provision for income taxes(4.1)
(4.4)
(3.8)Net income from continuing operations15.5
15.2
14.5Net income from continuing operations attributable to noncontrolling interests
(0.1)
(0.1)
(0.1)
Net income from continuing operations attributable to Amphenol Corporation
15.4
15.1
14.4
Income from discontinued operations attributable to Amphenol Corporation
—
—
0.2
Net income attributable to Amphenol Corporation15.4
%
15.1
%14.6
%Note: Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
2023 Compared to 2022Net sales were $12,554.7 for the year ended December 31, 2023 compared to $12,623.0 for the year ended December 31, 2022, which represented a decrease of 1% in U.S. dollars and 3% organically (excluding both currency and acquisition impacts), while flat in constant currencies compared to the prior year. The decrease in net sales in 2023 was driven by a sales decline in the Communications Solutions segment, partially offset by growth in the Harsh Environment Solutions and Interconnect and Sensor Systems segments, as described below. From an end market standpoint, the decrease in net sales was driven by organic declines in the information technology and data communications (“IT datacom”), mobile networks, mobile devices, industrial and broadband communications markets, partially offset by robust organic growth in the automotive, defense and commercial aerospace markets, along with contributions from the Company’s acquisition program. Net sales to the automotive market increased approximately $310.5, reflecting broad-based strength across our global automotive markets, in particular, next-generation electronics, including electric and hybrid drive trains. Net sales to the defense market increased approximately $237.6, driven by broad-based strength across virtually all defense applications, particularly related to naval, aircraft engines, helicopters, communications, and space-related applications, as well as contributions from acquisitions. Net sales to the commercial aerospace market increased approximately $117.9, primarily due to increased broad-based demand across all aircraft applications, in particular larger passenger planes. Net sales to the industrial market remained flat, as contributions from acquisitions, along with growth in medical, oil and gas, mass transit and transportation applications were offset by moderations in industrial instrumentation, battery and electric heavy vehicles, factory automation and heavy equipment applications. Net sales to the IT datacom market decreased approximately $362.8, as we experienced moderations across a broad array of applications including networking equipment, cloud storage, transmission, consumer electronics and servers, partially offset by strong growth in artificial intelligence-related applications. Net sales to the mobile networks market decreased approximately $163.9, driven by broad-based moderations in demand from mobile network operators and wireless equipment manufacturers, partially offset by contributions from acquisitions. Net sales to the mobile devices market decreased approximately $161.5, driven by declines in sales in laptops, wearable devices, tablets and production-related products, partially offset by growth in smartphones. Net sales to the broadband communications market decreased approximately $46.4, driven by moderations in demand from broadband service operators.Net sales in the Harsh Environment Solutions segment (approximately 28% of net sales) increased 14% in U.S. dollars, 14% in constant currencies and 9% organically, in 2023, compared to 2022. The sales growth in 2023 was primarily driven by strong organic growth in the defense, commercial aerospace, automotive and IT datacom markets, along with contributions from the Company’s acquisition program, partially offset by organic declines in the industrial and mobile networks markets.
29Table of ContentsNet sales in the Communications Solutions segment (approximately 39% of net sales) decreased 13% in U.S. dollars, 12% in constant currencies and 13% organically, in 2023, compared to 2022. The sales decline in 2023 was primarily driven by organic declines in the IT datacom, industrial, mobile networks, mobile devices and broadband communications markets, partially offset by strong organic growth in the automotive market, along with modest contributions from the Company’s acquisition program.Net sales in the Interconnect and Sensor Systems segment (approximately 33% of net sales) increased 6% in U.S. dollars, 7% in constant currencies and 3% organically, in 2023, compared to 2022. The sales growth in 2023 was primarily driven by strong organic growth in the automotive and commercial aerospace markets, and moderate growth in the industrial and defense markets, along with contributions from the Company’s acquisition program, partially offset by organic declines in the IT datacom and mobile networks markets.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, geography and consolidated, for the year ended December 31, 2023 compared to the year ended December 31, 2022:
Percentage Growth (relative to prior year) (1)
Net sales
Foreign
Constant
Organic
growth in
currency
Currency Net
Acquisition
Net Sales
U.S. Dollars (2)
impact (3)
Sales Growth (4)
impact (5)
Growth (4)
Net sales by:20232022(GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
Segment:
Harsh Environment Solutions
$3,530.8$3,107.214%
—
%
14%
5%
9%
Communications Solutions
4,912.8
5,652.4(13)%
(1)%
(12)%
1%
(13)%
Interconnect and Sensor Systems
4,111.1
3,863.4
6%
—
%
7%
3%
3%
Consolidated
$12,554.7
$12,623.0(1)%
—
%
—%
3%
(3)%
Geography (6) :
United States
$4,405.4$4,155.26%
—
%
6%
5%
1%
Foreign
8,149.3
8,467.8
(4)%
(1)%
(3)%
1%
(4)%
Consolidated
$12,554.7
$12,623.0(1)%
—
%
—%
3%
(3)%
(1) Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
(2) Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the Notes to Consolidated 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.
(3) Foreign currency translation impact, a non-GAAP measure, represents the percentage impact on net sales resulting from foreign currency exchange rate changes in the current reporting year compared to the prior reporting year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the prior year from current year net sales, taken as a percentage of the prior year’s net sales.
(4) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section of this Item 7.
(5) Acquisition impact, a non-GAAP measure, represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year and/or prior comparable year presented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. Acquisition impact is calculated as a percentage of the respective prior year period(s) net sales.
(6) Net sales by geographic area are based on the customer location to which the product is shipped.
The decrease in foreign net sales in 2023 compared to 2022 was primarily driven by sales declines in Asia. The comparatively stronger U.S. dollar in 2023 had the effect of decreasing sales by approximately $61.1, compared to 2022.Selling, general and administrative expenses were $1,489.9, or 11.9% of net sales for 2023, compared to $1,420.9, or 11.3% of net sales, for 2022. The increase in Selling, general and administrative expenses as a percentage of net sales in 2023 was primarily driven by the effect of acquisitions, which currently have higher selling, general and administrative expenses as a percentage of net sales compared to the Company average. Administrative expenses increased $26.2 in 2023 and represented approximately 4.8% of net sales in 2023 and 4.6% of net sales in 2022. Research and development expenses increased $18.6 in 2023, primarily related to increases in expenses for new product development, and represented approximately 2.7% of net sales in 2023 and 2.6% of net sales in 2022. Selling and marketing expenses increased $24.2 in 2023 compared to 2022, and represented approximately 4.3% of net sales in 2023 and 4.1% of net sales in 2022.Operating income was $2,559.6, or 20.4% of net sales, in 2023, compared to $2,585.8, or 20.5% of net sales, in 2022. Operating income in 2023 included acquisition-related expenses of $34.6, comprised primarily of external transaction costs, as well as the amortization related to the value associated with acquired backlog resulting from three of the acquisitions that closed in 2023. Operating income in 2022 included acquisition-related expenses of $21.5,
30Table of Contentscomprised primarily of the amortization related to the value associated with acquired backlog resulting from two acquisitions that closed in 2022, along with external transaction costs. The acquisition-related expenses in 2023 and 2022 had the effect of decreasing net income from continuing operations by $30.2, or $0.05 per share, and $18.4, or $0.03 per share, respectively. Acquisition-related expenses are presented separately in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, each as defined in the “Non-GAAP Financial Measures” section below, were $2,594.2 and 20.7% of net sales, respectively, in 2023, and $2,607.3 and 20.7% of net sales, respectively, in 2022. While Adjusted Operating Income decreased modestly from 2022, Adjusted Operating Margin remained flat in 2023 relative to 2022, as the benefit of pricing actions and strong operational performance were offset by the operating leverage on the lower sales volumes, along with the negative impact on operating margin related to acquisitions that are currently operating below the average operating margin of the Company.Operating income for the Harsh Environment Solutions segment in 2023 was $943.9, or 26.7% of net sales, compared to $801.6, or 25.8% of net sales in 2022. The increase in operating margin for the Harsh Environment Solutions segment for 2023 compared to 2022 was primarily driven by normal operating leverage on the higher sales volumes and strong operational performance, combined with the benefit of pricing actions, all partially offset by the negative impact on operating margin related to acquisitions that are currently operating below the average operating margin of the Company.Operating income for the Communications Solutions segment in 2023 was $1,063.5, or 21.6% of net sales, compared to $1,245.7, or 22.0% of net sales in 2022. The decrease in operating margin for the Communications Solutions segment for 2023 compared to 2022 was primarily driven by operating leverage on the lower sales volumes, partially offset by the benefit of pricing actions and strong operational performance.Operating income for the Interconnect and Sensor Systems segment in 2023 was $753.7, or 18.3% of net sales, compared to $716.5, or 18.5% of net sales in 2022. The modest decrease in operating margin for the Interconnect and Sensor Systems segment for 2023 compared to 2022 was primarily driven by the negative impact on operating margin related to acquisitions that are currently operating below the average operating margin of the Company, partially offset by the normal operating leverage on the higher sales volumes combined with the benefit of pricing actions.Interest expense was $139.5 in 2023 compared to $128.4 in 2022. The increase in interest expense was driven by the higher interest rate environment, which primarily impacted borrowings under the Company’s U.S. Commercial Paper Program that were outstanding throughout much of 2023. Refer to Note 4 of the Notes to Consolidated Financial Statements for further information related to the Company’s debt.Provision for income taxes was at an effective rate of 20.7% in 2023 and 22.3% in 2022. Provision for income taxes in 2023 included excess tax benefits of $82.4 from stock option exercises as well as the effect of the gain from the bargain purchase acquisition that closed in the second quarter of 2023, all of which were partially offset by the tax effects related to acquisition-related expenses during the year. These items had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below. Provision for income taxes in 2022 included excess tax benefits of $56.0 from stock option exercises, partially offset by the tax effects related to acquisition-related expenses during the year. These items had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.0% and 24.5% for 2023 and 2022, 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 from continuing operations attributable to Amphenol Corporation and Net income from continuing operations per common share attributable to Amphenol Corporation-Diluted (“Diluted EPS”) were $1,928.0 and $3.11, respectively, for 2023, compared to $1,902.3 and $3.06, respectively, for 2022. Excluding the effect of the items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,870.4 and $3.01, respectively, for 2023, compared to $1,864.7 and $3.00, respectively, for 2022.
31Table of ContentsThe following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income from continuing operations attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all on a continuing operations basis only, each as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2023 and 2022:
20232022
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)
$2,559.6
20.4%
$1,928.020.7%
$3.11
$2,585.8
20.5%
$1,902.322.3%
$3.06Acquisition-related expenses
34.6
0.3
30.2
(0.2)
0.05
21.50.2
18.4(0.1)
0.03
Gain on bargain purchase acquisition
—
—
(5.4)
0.1
(0.01)
—
—
——
—
Excess tax benefits related to stock-based compensation
—
—
(82.4)
3.4
(0.13)
—
—
(56.0)2.3
(0.09)Adjusted (non-GAAP) (2)
$2,594.220.7%
$1,870.4
24.0
%
$3.01
$2,607.3
20.7
%
$1,864.724.5%
$3.00Note: All data in the tables above are on a continuing operations basis only and exclude results associated with discontinued operations.
(1) While the terms “operating margin” and “effective tax rate” are not considered U.S. GAAP financial measures, for purposes of this table, we derive the reported (GAAP) measures based on GAAP results, which serve as the basis for the reconciliation to their comparable non-GAAP financial measures.
(2) All percentages and per share amounts in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
2022 Compared to 2021Net sales were $12,623.0 for the year ended December 31, 2022 compared to $10,876.3 for the year ended December 31, 2021, which represented an increase of 16% in U.S. dollars, 19% in constant currencies and 15% organically (excluding both currency and acquisition impacts) compared to the prior year. The increase in net sales in 2022 was driven by robust growth across all three reportable business segments, as described below. From an end market standpoint, the increase in net sales was driven by robust organic growth across most end markets, including the automotive, IT datacom, industrial, broadband communications and commercial aerospace markets, moderate organic growth in the defense, mobile networks and mobile devices markets, and contributions from the Company’s acquisition program. Net sales to the automotive market increased approximately $470.1, reflecting broad-based growth across our global automotive market, including the Company’s strength in next-generation electronics, in particular electric and hybrid drive trains, power management, infotainment communications, antenna and antenna assemblies, charging stations, and safety and security systems. Net sales to the IT datacom market increased approximately $414.6, as we continue to benefit from our strong technology solutions and leading position across a broad array of applications as customers continue to support higher demand for increased bandwidth and cloud storage, along with contributions from acquisitions. Net sales to the industrial market increased approximately $399.7, with broad-based growth across nearly all market segments of the global industrial market, with particular strength in e-mobility applications primarily in heavy and commercial vehicles, along with strong growth in factory automation, alternative energy, medical, and transportation applications, as well as contributions from acquisitions. Net sales to the broadband communications market increased approximately $241.2, driven by increased overall demand from broadband service operators related to data network upgrades and expansions, along with contributions from acquisitions. Net sales to the commercial aerospace market increased approximately $85.6, primarily due to the continued recovery in travel and demand for aircraft, along with contributions from acquisitions. Net sales to the defense market increased approximately $47.9, driven by strength in space-related applications, unmanned aerial vehicles, ground vehicles, and avionics, as well as contributions from acquisitions. Net sales to the mobile networks market increased approximately $46.4, driven by continued recovery in demand from mobile networks equipment manufacturers and mobile operators, along with contributions from acquisitions. Net sales to the mobile devices market increased approximately $41.2, driven by growth in products incorporated into smartphones and wearable devices, partially offset by moderations in sales of tablets, hearable devices and laptops.
Net sales in the Harsh Environment Solutions segment (approximately 25% of net sales) increased 13% in U.S. dollars, 16% in constant currencies and 15% organically, in 2022, compared to 2021. The sales growth in 2022 was driven by strong organic growth in the industrial, automotive and commercial aerospace markets, and moderate organic
32Table of Contentsgrowth in the defense, mobile networks and IT datacom markets, along with contributions from the Company’s acquisition program.Net sales in the Communications Solutions segment (approximately 45% of net sales) increased 17% in U.S. dollars, 19% in constant currencies and 13% organically, in 2022, compared to 2021. The sales growth in 2022 was driven by strong organic growth across several end markets, in particular the IT datacom, broadband communications and automotive markets, and moderate organic growth in the mobile devices, industrial and mobile networks markets, along with contributions from the Company’s acquisition program.Net sales in the Interconnect and Sensor Systems segment (approximately 30% of net sales) increased 17% in U.S. dollars, 23% in constant currencies and 18% organically, in 2022, compared to 2021. The sales growth in 2022 was primarily driven by strong organic growth in the automotive, industrial, IT datacom, defense and commercial aerospace markets, along with contributions from the Company’s acquisition program, partially offset by a moderate decline in the mobile networks market.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, geography and consolidated, for the year ended December 31, 2022 compared to the year ended December 31, 2021:
Percentage Growth (relative to prior year) (1)
Net sales
Foreign
Constant
Organic
growth in
currency
Currency Net
Acquisition
Net Sales
U.S. Dollars (2)
impact (3)
Sales Growth (4)
impact (5)
Growth (4)
Net sales by:20222021(GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
Segment:
Harsh Environment Solutions
$3,107.2$2,752.213%
(4)%
16%
2%
15%
Communications Solutions
5,652.4
4,832.117%
(2)%
19%
5%
13%
Interconnect and Sensor Systems
3,863.4
3,292.0
17%
(5)%
23%
5%
18%
Consolidated
$12,623.0
$10,876.316%
(3)%
19%
4%
15%
Geography (6) :
United States
$4,155.2$3,155.932%
—
%
32%
9%
23%
Foreign
8,467.8
7,720.4
10%
(4)%
14%
2%
12%
Consolidated
$12,623.0
$10,876.316%
(3)%
19%
4%
15%
(1) Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
(2) Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the Notes to Consolidated 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.
(3) Foreign currency translation impact, a non-GAAP measure, represents the percentage impact on net sales resulting from foreign currency exchange rate changes in the current reporting year compared to the prior reporting year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the prior year from current year net sales, taken as a percentage of the prior year’s net sales.
(4) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section of this Item 7.
(5) Acquisition impact, a non-GAAP measure, represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year and/or prior comparable year presented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. Acquisition impact is calculated as a percentage of the respective prior year period(s) net sales.
(6) Net sales by geographic area are based on the customer location to which the product is shipped.
The increase in foreign net sales in 2022 compared to 2021 was driven by strong growth in both Europe and Asia. The comparatively stronger U.S. dollar in 2022 had the effect of decreasing sales by approximately $359.8, compared to 2021.Selling, general and administrative expenses were $1,420.9, or 11.3% of net sales for 2022, compared to $1,226.3, or 11.3% of net sales, for 2021. Selling, general and administrative expenses as a percentage of net sales in 2022 remained flat as the leverage on the higher sales volumes during the year was offset by the Sensors business (“MTS Sensors”) of MTS Systems Corporation (“MTS”), acquired in early 2021, having higher selling, general and administrative expenses as a percentage of net sales compared to the Company average. Administrative expenses increased $90.6 in 2022 and represented approximately 4.6% of net sales in 2022 and 4.5% of net sales in 2021. Research and development expenses increased $5.9 in 2022, primarily related to increases in expenses for new product development, and represented approximately 2.6% of net sales in 2022 and 2.9% of net sales in 2021. Selling and marketing expenses increased $98.1 in 2022 compared to 2021, and represented approximately 4.1% of net sales in 2022 and 3.8% of net sales in 2021.
33Table of ContentsOperating income was $2,585.8, or 20.5% of net sales, in 2022, compared to $2,105.1, or 19.4% of net sales, in 2021. Operating income in 2022 included acquisition-related expenses of $21.5, comprised primarily of the amortization related to the value associated with acquired backlog resulting from two acquisitions that closed in 2022, along with external transaction costs. Operating income in 2021 included acquisition-related expenses of $70.4, comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the acquisition of MTS in the second quarter of 2021, along with external transaction costs and certain non-cash purchase accounting costs related to the acquisition of Halo Technology Limited (“Halo”) in the fourth quarter of 2021. The acquisition-related expenses in 2022 and 2021 had the effect of decreasing net income from continuing operations by $18.4, or $0.03 per share, and $57.3, or $0.09 per share, respectively. Acquisition-related expenses are presented separately in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, each as defined in the “Non-GAAP Financial Measures” section below, were $2,607.3 and 20.7% of net sales, respectively, in 2022, and $2,175.5 and 20.0% of net sales, respectively, in 2021. The increases in Adjusted Operating Income and Adjusted Operating Margin in 2022 relative to 2021 was driven by all three segments, as described below.Operating income for the Harsh Environment Solutions segment in 2022 was $801.6, or 25.8% of net sales, compared to $708.2, or 25.7% of net sales in 2021. The slight increase in operating margin for the Harsh Environment Solutions segment for 2022 compared to 2021 was primarily driven by normal operating leverage on the higher sales volumes, combined with the benefit of pricing actions, which were largely offset by the impact of the more challenging cost environment experienced in 2022.Operating income for the Communications Solutions segment in 2022 was $1,245.7, or 22.0% of net sales, compared to $1,023.3, or 21.2% of net sales in 2021. The increase in operating margin for the Communications Solutions segment for 2022 compared to 2021 was primarily driven by normal operating leverage on the higher sales volumes, combined with the benefit of pricing actions, partially offset by the impact of the more challenging cost environment experienced in 2022.Operating income for the Interconnect and Sensor Systems segment in 2022 was $716.5, or 18.5% of net sales, compared to $588.1, or 17.9% of net sales in 2021. The increase in operating margin for the Interconnect and Sensor Systems segment for 2022 compared to 2021 was primarily driven by normal operating leverage on the higher sales volumes, combined with the benefit of pricing actions, partially offset by the impact of the more challenging cost environment experienced in 2022.Interest expense was $128.4 in 2022 compared to $115.5 in 2021. The increase in interest expense was driven by the higher interest rate environment and its impact on the balance outstanding under the Company’s U.S. Commercial Paper Program. Refer to Note 4 of the Notes to Consolidated Financial Statements for further information related to the Company’s debt.Provision for income taxes was at an effective rate of 22.3% in 2022 and 20.6% in 2021. Provision for income taxes in 2022 included excess tax benefits of $56.0 from stock option exercises, partially offset by the tax effects related to acquisition-related expenses during the year. These items had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below. Provision for income taxes in 2021 included (i) excess tax benefits of $63.4 from stock option exercises and (ii) a discrete tax benefit of $14.9 related to the settlement of uncertain tax positions in certain non-U.S. jurisdictions, all of which were partially offset by the tax effects related to acquisition-related expenses during the year. These items had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.5% and 24.3% for 2022 and 2021, 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 from continuing operations attributable to Amphenol Corporation and Diluted EPS were $1,902.3 and $3.06, respectively, for 2022, compared to $1,569.4 and $2.51, respectively, for 2021. Excluding the effect of the items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,864.7 and $3.00, respectively, for 2022, compared to $1,548.4 and $2.48, respectively, for 2021.
34Table of ContentsThe following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income from continuing operations attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all on a continuing operations basis only, each as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2022 and 2021:
20222021
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)
$2,585.8
20.5%
$1,902.322.3%
$3.06
$2,105.1
19.4%
$1,569.420.6%
$2.51Acquisition-related expenses
21.50.2
18.4(0.1)
0.03
70.40.6
57.3(0.2)
0.09
Excess tax benefits related to stock-based compensation
—
—
(56.0)2.3
(0.09)
—
—
(63.4)3.2
(0.10)
Discrete tax item
—
—
——
—
—
—
(14.9)0.7
(0.02)Adjusted (non-GAAP) (2)
$2,607.3
20.7
%
$1,864.724.5%
$3.00
$2,175.520.0%
$1,548.424.3%
$2.48
Note: All data in the tables above are on a continuing operations basis only and exclude results associated with discontinued operations.
(1) While the terms “operating margin” and “effective tax rate” are not considered U.S. GAAP financial measures, for purposes of this table, we derive the reported (GAAP) measures based on GAAP results, which serve as the basis for the reconciliation to their comparable non-GAAP financial measures.
(2) All percentages and per share amounts in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
Liquidity and Capital Resources
Liquidity and Cash Requirements
At December 31, 2023 and 2022, the Company had cash, cash equivalents and short-term investments of $1,660.2 and $1,434.2, respectively, with the majority of the Company’s cash, cash equivalents and short-term investments on hand located outside of the United States. The Company’s primary sources of liquidity are internally generated cash provided by operating activities, our cash, cash equivalents and short-term investments on hand, as well as availability under the U.S. Commercial Paper Program, the Euro Commercial Paper Program, the Revolving Credit Facility, and the Term Loan (all of which are defined and discussed in more detail below within this Item 7). The Company believes that these sources of liquidity, along with access to capital markets (which the Company accessed in March 2023 in connection with the issuance of the 2026 Senior Notes, as defined and discussed in more detail below within this Item 7), provide adequate liquidity to meet both its short-term (next 12 months) and reasonably foreseeable long-term requirements and obligations.
Cash Requirements from Known Contractual and Other Obligations
The Company’s primary ongoing cash requirements will be for operating and working capital needs, capital expenditures, product development activities, repurchases of our Common Stock, dividends, debt service, payments associated with the one-time tax on the deemed repatriation of all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries (“Transition Tax”), which is payable in annual installments until 2025, taxes due upon the repatriation of foreign earnings (which will be payable upon the repatriation of such earnings) , funding of pension obligations, and other contractual obligations and commitments (refer to the table below for the Company’s material cash requirements from known contractual and other obligations). The Company may also use cash to fund all or part of the cost of future acquisitions, as was the case with our 2023 acquisitions. The Company expects that capital expenditures in 2024 will be in a range of 3% to 4% of net sales. The Company’s debt service requirements primarily consist of principal and interest on the Company’s Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility, Commercial Paper Programs and the Term Loan (all as defined below). As of December 31, 2023, the Company had no borrowings outstanding under the Revolving Credit Facility, Term Loan, U.S. Commercial Paper Program and Euro Commercial Paper Pro gram. However , the Company borrowed under the U.S. Commercial Paper Program throughout much of 2023, the proceeds of which were used for general corporate purposes, and the Company may make additional borrowings under any of its debt instruments in the future. As a result of increases in the federal funds rate by the U.S. Federal Reserve beginning in early 2022 and through the middle of 2023, the floating interest rates related to our U.S. Commercial Paper Program (as well as our Revolving Credit Facility and Term Loan, to the extent either are drawn upon in the future) have increased substantially over this same period, a trend that could continue into 2024 and potentially beyond. To the extent that interest rates related to this floating rate debt increase
35Table of Contentsfurther and the Company borrows under any of these floating interest rate instruments in the future, interest expense and interest payments would increase. Although the Company does not expect changes in interest rates to have a material effect on income or cash flows in 2024, there can be no assurance that interest rates will not change significantly from current levels.The following table summarizes the Company’s material short- and long-term cash requirements from known obligations pursuant to certain contracts and commitments as of December 31, 2023, as well as an estimate of the timing in which such obligations and payments are expected to be satisfied.
Payment Due By Period
Contractual Obligations
Less than
1-3
3-5
More than
(dollars in millions)
Total
1 year
years
years
5 years
Debt (1)
$4,358.8
$354.0
$1,305.2
$552.3
$2,147.3
Interest related to senior notes
542.6109.1186.3149.098.2
Operating leases (2)
332.299.8126.059.746.7
Purchase obligations (3)
968.7932.428.16.41.8
Accrued pension and postretirement benefit obligations (4)
52.15.810.010.326.0
Transition tax (5)
62.930.1
32.8
—
—
Total (6)
$6,317.3
$1,531.2
$1,688.4
$777.7
$2,320.0(1) The Company has excluded expected interest payments on the Revolving Credit Facility, Term Loan, U.S. Commercial Paper Program and Euro Commercial Paper Program from the above table, as this calculation is largely dependent on average debt levels during each of the years presented. The actual interest payments made related to the Company’s Revolving Credit Facility, Term Loan and both Commercial Paper Programs combined, in 2023, were approximately $17.5. Expected debt levels, and therefore expected interest payments, are difficult to predict, as they are significantly impacted by items such as future acquisitions, repurchases of Common Stock and dividend payments, as well as payments or additional borrowings made to reduce or increase the underlying revolver balance.(2) The Company’s operating lease payments included in this table reflect the future minimum undiscounted fixed lease payments, which serve as the basis for calculating the Company’s operating lease liabilities as of December 31, 2023. The table above excludes any variable lease payments not included in the measurement of the Company’s right-of-use assets and operating lease liabilities, due to their uncertainty. Finance leases are not material to the Company individually or in the aggregate and as such have been excluded from the table above.
(3) Purchase obligations relate primarily to open purchase orders for goods and services, including but not limited to, raw materials and components to be used in production.
(4) This table includes estimated benefit payments expected to be made under the Company’s unfunded pension and postretirement benefit plans, as well as the anticipated minimum required contributions under the Company’s funded pension plans, the most significant of which covers certain of its U.S. employees. Over the past several years, there has been no minimum requirement for Company contributions to our defined benefit pension plans in the United States (“U.S. Plans”) due to prior contributions made in excess of minimum requirements, and as a result, there was no anticipated minimum required contribution included in the table above related to the U.S. Plans for 2024. The Company did not make any voluntary contributions to its U.S. Plans in 2023 and 2022. It is not possible to reasonably estimate expected required contributions in the above table after 2024, since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets.(5) As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”) in December 2017, the United States changed to a modified territorial tax system, which significantly reduced the U.S. tax expense associated with the remittance of foreign earnings, among other changes. The Tax Act also imposed the Transition Tax associated with all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries. As a result, on December 31, 2017, the Company recorded a provisional U.S. tax expense for the Transition Tax, which was adjusted and finalized in 2018. The Transition Tax is to be paid in annual installments over the eight-year period until 2025, as permitted under the Tax Act. The table above reflects the remaining amounts associated with the Transition Tax, which is net of applicable tax credits and deductions. The sixth installment of the Transition Tax was paid in the second quarter of 2023.(6) As of December 31, 2023, the Company has recorded net liabilities of approximately $207.7 related to unrecognized tax benefits. These liabilities have been excluded from the above table due to the high degree of uncertainty regarding the timing of potential future cash flows. It is difficult to make a reasonably reliable estimate of the amount and period in which all of these liabilities might be paid.
Repatriation of Foreign Earnings and Related Income Taxes
The Company has previously indicated an intention to repatriate most of its pre-2023 accumulated earnings and has accrued the foreign and U.S. state and local taxes, if applicable, on those earnings, as appropriate. The associated tax payments are due as the repatriations are made. The Company intends to indefinitely reinvest the remaining pre-2023 foreign earnings. The Company intends to distribute certain 2023 foreign earnings and, as of December 31, 2023, has accrued foreign and U.S. state and local taxes, where applicable, on those foreign earnings that it intends to repatriate, and intends to indefinitely reinvest the remaining 2023 foreign earnings. The Company intends to (i) evaluate certain post-2023 earnings for repatriation, and will accrue for those distributions where appropriate, and (ii) indefinitely reinvest all other foreign earnings. In addition, the Company paid its sixth annual installment of the Transition Tax, net of applicable tax credits and deductions, in the second quarter of 2023, and will pay the balance of the Transition Tax, net of applicable tax credits and deductions, in annual installments over the remainder of the eight-year period ending 2025, as permitted under the Tax Act. As of December 31, 2023, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,350 related to certain geographies, as it is the Company’s intention to permanently reinvest such earnings outside the United States. It is impracticable to calculate the amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated.
36Table of ContentsCash Flow Summary
The following table summarizes the Company’s cash flows from operating, investing and financing activities for the years ended December 31, 2023, 2022 and 2021, as reflected in the Consolidated Statements of Cash Flow:
Year Ended December 31,
2023
20222021
Net cash provided by operating activities from continuing operations
$2,528.7
$
2,174.6$
1,523.9
Net cash used in investing activities from continuing operations
(1,393.7)
(731.1)(2,604.4)
Net cash used in financing activities from continuing operations
(1,012.4)
(1,196.7)
(145.1)
Net cash change from discontinued operations
—
—
733.0Effect of exchange rate changes on cash and cash equivalents
(20.7)
(70.8)(12.3)
Net increase (decrease) in cash and cash equivalents
$
101.9
$
176.0
$
(504.9)
Note: Net cash change from discontinued operations in the table above, during the year ended December 31, 2021, includes the proceeds from the sale of the Divested MTS business, as defined and discussed in further detail in Note 11 of the Notes to Consolidated Financial Statements.
Operating Activities
The ability to generate cash from operating activities is one of the Company’s fundamental financial strengths. Operating Cash Flow was $2,528.7 in 2023, compared to $2,174.6 in 2022 and $1,523.9 in 2021. The increase in Operating Cash Flow in 2023 compared to 2022 is primarily due to an overall decrease in the net components of working capital in 2023, as discussed in more detail below. The increase in Operating Cash Flow in 2022 compared to 2021 was primarily due to both an increase in net income from continuing operations and a lower usage of cash related to the change in working capital as discussed below.In 2023, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow decreased $149.8, excluding the impact of acquisitions and foreign currency translation, primarily due to decreases in accounts receivable of $146.4 and inventories of $71.4, partially offset by a decrease in accounts payable of $34.6 and an increase in prepaid expenses and other current assets of $34.1. In 2022, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $193.1, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in inventories of $278.5 and accounts receivable of $273.1, partially offset by increases in accrued liabilities, including income taxes, of $246.3 and accounts payable of $62.5, and a decrease in prepaid expenses and other current assets of $49.7. In 2021, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $496.4, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in accounts receivable, inventories, and prepaid expenses and other current assets of $398.4, $263.0 and $20.2, respectively, partially offset by increases in accounts payable of $131.7 and accrued liabilities, including income taxes, of $53.5.The following describes the significant changes in the amounts as presented on the accompanying Consolidated Balance Sheets at December 31, 2023 compared to December 31, 2022. Accounts receivable decreased $12.9 to $2,618.4, driven by the decrease in days sales outstanding as noted below, which was largely offset by the impact of the 10 acquisitions (collectively, the “2023 Acquisitions”) that closed during 2023 and the effect of translation from exchange rate changes (“Translation”) at December 31, 2023 compared to December 31, 2022. Days sales outstanding at December 31, 2023 and 2022 were 70 days and 73 days, respectively. Inventories increased $73.5 to $2,167.1, which was primarily driven by the impact of the 2023 Acquisitions. Inventory days at December 31, 2023 and 2022 were 85 days and 86 days, respectively. Prepaid expenses and other current assets increased $69.6 to $389.6, primarily due to increases in various prepaid expenses and other current receivables, along with the impact of the 2023 Acquisitions. Property, plant and equipment, net, increased $110.4 to $1,314.7, primarily due to capital expenditures of $372.8, the impact of the 2023 Acquisitions and Translation, partially offset by depreciation of $313.7 and disposals. Goodwill increased $646.3 to $7,092.4, primarily driven by goodwill recognized as a result of the 2023 Acquisitions, along with Translation. Other intangible assets, net, increased $100.7 to $834.8, primarily due to the recognition of certain intangible assets related to the 2023 Acquisitions, partially offset by amortization of $86.0 associated with the Company’s current intangible assets. Accounts payable increased $41.8 to $1,350.9, primarily due to the impact of the 2023 Acquisitions. Payable days at December 31, 2023 and 2022 were 55 days and 54 days, respectively. Total accrued expenses, including accrued income taxes, increased $83.7 to $1,448.0, primarily due to the impact of the 2023 Acquisitions and increases in certain other accrued expenses, partially offset by modest decreases in accrued salaries, wages and employee benefits and accrued income taxes. Accrued pension and postretirement benefit obligations increased $15.1 to $143.0.
37Table of ContentsIn addition to Operating Cash Flow, the Company also considers Free Cash Flow, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, as a key metric in measuring the Company’s ability to generate cash. The following table reconciles Free Cash Flow to its most directly comparable U.S. GAAP financial measure for the years ended December 31, 2023, 2022 and 2021. The increases in Free Cash Flow in 2023 compared to 2022, as well as in 2022 compared to 2021, were driven by the increase in Operating Cash Flow in each respective year, as described above. The following table is on a continuing operations basis only and excludes any cash flows related to discontinued operations:
2023
20222021Operating Cash Flow (GAAP)
$2,528.7
$
2,174.6$
1,523.9Capital expenditures (GAAP)
(372.8)
(383.8)
(360.4)Proceeds from disposals of property, plant and equipment (GAAP)
4.0
5.6
3.7Free Cash Flow (non-GAAP)
$2,159.9
$
1,796.4
$
1,167.2
Investing Activities
Cash flows from investing activities primarily consist of cash flows associated with capital expenditures, proceeds from disposals of property, plant and equipment , net purchases (sales and maturities) of short- and long-term investments, and acquisitions.Net cash used in investing activities from continuing operations was $1,393.7 in 2023, compared to $731.1 in 2022 and $2,604.4 in 2021. In 2023, net cash used in investing activities from continuing operations was primarily driven by the use of $970.4 to fund acquisitions, capital expenditures (net of disposals) of $368.8, and net purchases of short-term investments of $59.4. In 2022, net cash used in investing activities from continuing operations was primarily driven by capital expenditures (net of disposals) of $378.2, the use of $288.2 to fund acquisitions, net purchases of long-term investments of $56.0, and net purchases of short-term investments of $25.2. In 2021, net cash used in investing activities from continuing operations was primarily driven by the use of $2,225.4 to fund acquisitions, capital expenditures (net of disposals) of $356.7, and net purchases of short-term investments of $8.6.
Financing Activities
Cash flows from financing activities primarily consist of cash flows associated with borrowings and repayments of the Company’s credit facilities and other long-term debt, repurchases of Common Stock, proceeds from stock option exercises, dividend payments, and distributions to and purchases of noncontrolling interests.
Net cash used in financing activities from continuing operations was $1,012.4 in 2023, compared to $1,196.7 in 2022 and $145.1 in 2021. In 2023, net cash used in financing activities from continuing operations was primarily driven by (i) net repayments of $632.6 related to the Company’s commercial paper programs, primarily the U.S. Commercial Paper Program, (ii) repurchases of the Company’s Common Stock of $585.1, (iii) dividend payments of $500.6, (iv) distributions to and purchases of noncontrolling interests of $24.0, (v) other debt repayments of $15.7, (vi) payments of $2.3 related to debt financing costs associated with the Company’s $350.0 principal amount of unsecured 4.750% Senior Notes due March 30, 2026 (the “2026 Senior Notes”), and (vii) payment of $1.5 associated with the deferred purchase price related to an acquisition, partially offset by (a) cash proceeds of $394.5 from the exercise of stock options and (b) net cash proceeds from borrowings of $354.9, primarily related to the issuance of the 2026 Senior Notes. In 2022, net cash used in financing activities from continuing operations was primarily driven by (i) repurchases of the Company’s Common Stock of $730.5, (ii) dividend payments of $477.4, (iii) net repayments of $159.3, primarily under the U.S. Commercial Paper Program, (iv) other debt repayments of $55.2, primarily related to short-term debt, and (v) distributions to and purchases of noncontrolling interests of $9.9, partially offset by (a) cash proceeds of $185.3 from the exercise of stock options and (b) proceeds of $50.7 primarily related to short-term borrowings. In 2021, net cash used in financing activities from continuing operations was primarily driven by (i) debt repayments of $912.6, primarily related to the repayment of the assumed then-outstanding MTS senior notes in the second quarter of 2021 as well as the redemption of the 3.125% Senior Notes (the “2021 Senior Notes”) in the third quarter of 2021 and the redemption of the 4.00% Senior Notes (the “2022 Senior Notes”) in the fourth quarter of 2021, (ii) repurchases of the Company’s Common Stock of $661.7, (iii) dividend payments of $346.7, (iv) a cash transfer of $28.7 made by the Company’s continuing operations to its discontinued operations in order to fund the September 2021 payment of contingent consideration assumed as part of the MTS acquisition, (v) distributions to and purchases of noncontrolling interests of $18.9,
38Table of Contents(vi) payments of $9.3 related to debt financing costs associated with the Company’s $750.0 principal amount of unsecured 2.200% Senior Notes due September 15, 2031 (the “2031 Senior Notes”), and (vii) payments of $4.1 associated with the deferred purchase price related to acquisitions, partially offset by (a) net borrowings of $796.3 primarily under the U.S. Commercial Paper Program, the majority of the proceeds of which were used to fund acquisitions, including MTS, and to redeem the 2021 Senior Notes and the 2022 Senior Notes, (b) net cash proceeds of $752.1, primarily related to the September 2021 issuance of the 2031 Senior Notes, and (c) cash proceeds of $288.5 from the exercise of stock options.The Company has significant flexibility to meet its financial commitments. The Company uses debt financing to lower the overall cost of capital and increase return on stockholders’ equity. The Company’s debt financing includes the use of Commercial Paper Programs, the Revolving Credit Facility, the Term Loan, and senior notes as part of its overall cash management strategy.The Company has an amended and restated $2,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures in November 2026 and gives the Company the ability to borrow, in various currencies, at a spread that varies, based on the Company’s debt rating, over certain currency-specific benchmark rates, which benchmark rates in the case of U.S. dollar borrowings are either the base rate or the adjusted term Secured Overnight Financing Rate (“SOFR”). The Company may utilize the Revolving Credit Facility for general corporate purposes. As of December 31, 2023 and 2022, there were no outstanding borrowings under the Revolving Credit Facility. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. On December 31, 2023, the Company was in compliance with the financial covenants under the Revolving Credit Facility.On April 19, 2022, the Company entered into a two-year, $750.0 unsecured delayed draw term loan credit agreement (the “Term Loan”), which is scheduled to mature on April 19, 2024. The Term Loan was undrawn at closing and may be drawn on up to five occasions over the life of the facility. The Term Loan may be repaid at any time without premium or penalty, and, once repaid, cannot be reborrowed. If drawn upon, the proceeds from the Term Loan are expected to be used for general corporate purposes. Interest rates under the Term Loan are based on a spread over either the base rate or the adjusted term SOFR, which spread varies based on the Company’s debt rating. As of December 31, 2023, the Company had not yet drawn upon the Term Loan, and as such, there were no outstanding borrowings under the Term Loan. The Term Loan requires payment of certain commitment fees and requires that the Company satisfy certain financial covenants, which financial covenants are the same as those under the Revolving Credit Facility. On December 31, 2023, the Company was in compliance with the financial covenants under the Term Loan.The Company has a commercial paper program pursuant to which the Company may issue short-term unsecured commercial paper notes (the “USCP Notes”) in one or more private placements in the United States (the “U.S. Commercial Paper Program”). The maximum aggregate principal amount outstanding of USCP Notes at any time is $2,500.0. The Company utilizes borrowings under the U.S. Commercial Paper Program for general corporate purposes, which, in recent years, have included fully or partially funding acquisitions, as well as repaying certain outstanding senior notes as was the case in 2021 with (i) the third quarter 2021 redemption of the 2021 Senior Notes, of which $227.7 aggregate principal amount was then outstanding, and (ii) the fourth quarter 2021 redemption of the 2022 Senior Notes, of which $295.0 aggregate principal amount was then outstanding . The Company borrowed under the U.S. Commercial Paper Program throughout much of 2023, the proceeds of which were used for general corporate purposes. During the fourth quarter of 2023, the Company repaid all of its USCP Notes then outstanding, and, as of December 31, 2023, there were no USCP Notes outstanding. As of December 31, 2022, the amount of USCP Notes outstanding was $632.8, with a weighted average interest rate of 4.69%.The Company and one of its wholly owned European subsidiaries (the “Euro Issuer”) also have a commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the “Commercial Paper Programs”), pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, the “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States. The ECP Notes may be issued in Euros, Sterling, U.S. dollars or other currencies. The maximum aggregate principal amount outstanding of ECP Notes at any time is $2,000.0. The Company utilizes borrowings under the Euro Commercial Paper Program for general corporate purposes, which may include, for example, fully or partially funding acquisitions. As of December 31, 2023 and 2022, there were no ECP Notes outstanding.
39Table of ContentsAmounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time. In conjunction with the Revolving Credit Facility, as of December 31, 2023, the authorization from the Company’s Board of Directors (the “Board”) limits the maximum principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper or similar programs, along with outstanding amounts under the Revolving Credit Facility, at any time to $2,500.0 in the aggregate . The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and, based on the Board’s authorization described above, are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company’s Revolving Credit Facility are available to repay Commercial Paper, if necessary. Net proceeds of the issuances of Commercial Paper are expected to be used for general corporate purposes. The Company reviews its optimal mix of short-term and long-term debt regularly and may replace certain amounts of Commercial Paper, short-term debt and current maturities of long-term debt with new issuances of long-term debt in the future.As of December 31, 2023, the Company has outstanding senior notes (the “Senior Notes”) as follows:
Principal
Interest
Amount
Rate
Maturity
$350.0
3.20
%
April 2024
400.0
2.050
%
March 2025
350.0
4.750
%
March 2026
500.0
4.350
%
June 2029
900.02.80%
February 2030
750.0
2.200
%
September 2031
€
500.0
0.750
%
May 2026 (Euro Notes)
500.0
2.00
%
October 2028 (Euro Notes)
On March 30, 2023, the Company issued the 2026 Senior Notes. The Company used the net proceeds from the 2026 Senior Notes to repay certain outstanding borrowings under the U.S. Commercial Paper Program. On September 14, 2021, the Company issued the 2031 Senior Notes. The Company used the net proceeds from the 2031 Senior Notes to repay certain outstanding borrowings under 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 and the Euro Issuer’s other unsecured senior indebtedness. Interest on each series of U.S. Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series of U.S. Senior Notes at any time, subject to certain terms and conditions.The Euro Issuer has two outstanding unsecured senior notes issued in Europe. The Euro Issuer has €500.0 (approximately $545.4 at date of issuance) principal amount of unsecured 0.750% Senior Notes due May 4, 2026 (the “2026 Euro Notes”), the net proceeds of which were used to repay amounts outstanding under the then existing revolving credit facility. In addition, the Euro Issuer also has €500.0 (approximately $574.6 at date of issuance) principal amount of unsecured 2.000% Senior Notes due October 8, 2028 (the “2028 Euro Notes”, together with the 2026 Euro Notes, the “Euro Notes”, and the Euro Notes, together with the U.S. Senior Notes, the “Senior Notes”), the net proceeds of which were used to repay a portion of the outstanding amounts under our Commercial Paper Programs, with the remainder of the net proceeds being used for general corporate purposes. The Euro Notes are unsecured and rank equally in right of payment with the Company’s and the Euro Issuer’s other unsecured senior indebtedness and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on each series of Euro Notes is payable annually. The Company may, at its option, redeem some or all of either series of Euro Notes at any time, subject to certain terms and conditions.The Senior Notes impose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial requirements. On December 31, 2023, the Company was in compliance with all requirements under its Senior Notes. Refer to Note 4 of the Notes to Consolidated Financial Statements for further information related to the Company’s debt.On April 27, 2021, the Board authorized a stock repurchase program under which the Company may purchase up to $2,000.0 of the Company’s Common Stock during the three-year period ending April 27, 2024 (the “2021 Stock Repurchase Program”). During the years ended December 31, 2023, 2022 and 2021, the Company repurchased 7.2 million, 9.9 million and 6.2 million shares of its Common Stock for $585.1, $730.5 and $457.9, respectively, under the 2021 Stock Repurchase Program. Of the total repurchases made in 2023, 5.5 million shares, or $435.8, have been retired
40
Table of Contents
by the Company, with the remainder of the repurchased shares being retained in Treasury stock at the time of repurchase. Of the total repurchases made in 2022, 9.3 million shares, or $689.7, have been retired by the Company, with the remainder of the repurchased shares being retained in Treasury stock at the time of repurchase. Of the total repurchases made in 2021 under the 2021 Stock Repurchase Program, 5.8 million shares, or $424.9, were retired by the Company, with the remainder of the repurchased shares being retained in Treasury stock at the time of repurchase. From January 1, 2024 through January 31, 2024, the Company did not repurchase any additional shares of its Common Stock, and, as of February 1, 2024, the Company has remaining authorization to purchase up to $226.5 of its Common Stock under the 2021 Stock Repurchase Program. The timing and amount of any future purchases will depend on a number of factors, such as the levels of cash generation from operations, the volume of stock options exercised by employees, cash requirements for acquisitions, dividends paid, economic and market conditions and the price of the Common Stock.In April 2018, the Board authorized a stock repurchase program under which the Company could purchase up to $2,000.0 of Common Stock during the three-year period ending April 24, 2021 (the “2018 Stock Repurchase Program”). During the year ended December 31, 2021, the Company repurchased 3.1 million shares of its Common Stock for $203.8 under the 2018 Stock Repurchase Program. As a result of these purchases, the Company completed all purchases authorized under the 2018 Stock Repurchase Program, and, therefore, the 2018 Stock Repurchase Program was terminated. Of the total repurchases made in 2021 under the 2018 Stock Repurchase Program, 2.8 million shares, or $184.0, were retired by the Company, with the remainder of the repurchased shares being retained in Treasury stock at the time of repurchase.Contingent upon declaration by the Board, the Company pays a quarterly dividend on shares of its Common Stock. On October 25, 2022, the Board approved an increase to the Company’s quarterly dividend rate from $0.20 per share to $0.21 per share, effective with dividends declared in the fourth quarter of 2022, and on October 24, 2023, the Board approved an additional increase to the Company’s quarterly dividend rate from $0.21 per share to $0.22 per share, effective with dividends declared in the fourth quarter of 2023, contingent upon declaration by the Board. The following table summ arizes the declared quarterly dividends per share for each of the three years ended December 31, 2023, 2022 and 2021:
2023
2022
2021First Quarter
$0.21
$0.20
$0.145Second Quarter
0.21
0.20
0.145Third Quarter
0.21
0.20
0.145Fourth Quarter
0.22
0.21
0.20Total
$0.85
$0.81
$0.635The following table summarizes the dividends declared and paid for the years ended December 31, 2023, 2022 and 2021:
2023
2022
2021Dividends declared
$507.4
$482.6
$379.7Dividends paid (including those declared in the prior year)
500.6
477.4
346.7
Pensions
The Company and certain of its subsidiaries in the United States have defined benefit pension plans (“U.S. Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory. The majority of U.S. employees are not covered by the U.S. Plans and are instead covered by various defined contribution plans. Certain foreign subsidiaries also have defined benefit plans covering their employees (the “Foreign Plans” and, together with the U.S. Plans, the “Plans”). The total liability for accrued pension and postretirement benefit obligations associated with the Company’s pension and postretirement benefit plans decreased in 2023 to $106.0 from $111.1 in 2022, primarily driven by actual positive returns on plan assets in 2023, partially offset by interest cost and the modest effect of the lower discount rates in 2023 on our projected benefit obligations. There is no current requirement for cash contributions to any of the U.S. Plans, and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the Plans’ assets, the timing and amount of cash contributions in the future, if any.
Refer to Note 9 of the Notes to Consolidated Financial Statements for further discussion of the Company’s benefit plans and other postretirement benefit plans.41
Table of ContentsAcquisitions
During 2023, the Company completed 10 acquisitions (the “2023 Acquisitions”) for $970.4, net of cash acquired. Five of the acquisitions have been included in the Harsh Environment Solutions segment, three acquisitions have been included in the Interconnect and Sensor Systems segment, and two acquisitions have been included in the Communications Solutions segment. The 2023 Acquisitions were each funded using cash on hand or borrowings under our Commercial Paper Programs, or a combination thereof. One of the 2023 Acquisitions, which closed in the second quarter of 2023, represented a bargain purchase, where the estimated fair value of assets acquired, net of liabilities assumed, exceeded the purchase price. The Company recognized a non-cash gain of $5.4 on the bargain purchase acquisition during the year ended December 31, 2023, which has been recorded separately in the Company’s Consolidated Statements of Income. The 2023 Acquisitions were not material, either individually or in the aggregate, to the Company’s financial results.During 2022, the Company completed two acquisitions (the “2022 Acquisitions”) for $288.2, net of cash acquired. One of the 2022 Acquisitions was included in the Harsh Environment Solutions segment, and the other acquisition was included in the Interconnect and Sensor Systems segment. The 2022 Acquisitions, which were funded through a combination of borrowings under the U.S. Commercial Paper Program and cash on hand, were not material, either individually or in the aggregate, to the Company’s financial results.Acquisition-related Expenses
In 2023, the Company incurred $34.6 ($30.2 after-tax) of acquisition-related expenses, comprised primarily of external transaction costs associated with the 2023 Acquisitions, along with the amortization related to the value associated with acquired backlog resulting from three of the 2023 Acquisitions. In 2022, the Company incurred $21.5 ($18.4 after-tax) of acquisition-related expenses, comprised primarily of the amortization related to the value associated with acquired backlog resulting from the 2022 Acquisitions, along with external transaction costs. Such acquisition-related expenses are presented separately in the accompanying Consolidated Statements of Income.For further discussion of the Company’s acquisitions, refer to Note 11 of the Notes to Consolidated Financial Statements.Subsequent EventsOn January 30, 2024, the Company entered into a definitive stock purchase agreement by and between the Company and Carlisle Companies Incorporated (“Carlisle”), agreeing to acquire the Carlisle Interconnect Technologies (“CIT”) business of Carlisle for an aggregate purchase price of $2,025 in cash, subject to customary post-closing adjustments. The acquisition is expected to be completed by the end of the second quarter of 2024 and is subject to certain regulatory approvals and other customary closing conditions. The Company expects to finance the CIT acquisition through a combination of cash on hand and debt financing, which could include borrowings under the Company’s existing credit and/or U.S. Commercial Paper Program. CIT, headquartered in St. Augustine, FL, is a leading global supplier of harsh environment interconnect solutions primarily to the commercial aerospace, defense and industrial end markets. CIT’s wide range of products include wire and cable, cable assemblies, contacts, connectors and sensors, which, management believes, are highly complementary to Amphenol’s existing interconnect and sensor solutions. If and when the acquisition is consummated, the Company expects to report the CIT business within its Harsh Environment Solutions segment.Environmental Matters
Certain operations of the Company are subject to environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. For more information on certain environmental matters, refer to Note 14 of the Notes to Consolidated Financial Statements.42Table of Contents
Inflation and Costs
The cost of the Company’s products is influenced by the cost of a wide variety of raw materials. The Company strives to offset the impact of increases in the cost of raw materials, labor and services through price increases, productivity improvements and cost saving programs. However, in certain markets, implementing price increases can be difficult and there is no guarantee that the Company will be successful. From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may include regulatory restrictions. These difficulties may also negatively impact the pricing of materials and components sourced or used by the Company. While the Company does not currently anticipate significant, broad-based difficulties in obtaining raw materials or components necessary for production, inflationary pressures and logistical challenges may impact the cost and availability of certain raw materials and components used by the Company and result in supply shortages for discrete raw materials or components, which could be further exacerbated by increased commodity prices and additional inflation. For a discussion of certain risks related to inflation and costs, refer to the risk factor titled “ The Company and certain of its suppliers and customers have experienced difficulties obtaining certain raw materials and components, and the cost of certain of the Company’s raw materials and components is increasing ” in Part I, Item 1A. Risk Factors herein.
Foreign Currency Exchange Rates
The Company conducts business in many foreign currencies through its worldwide operations, and as a result, is subject to foreign exchange exposure due to changes in exchange rates of the various currencies, including possible currency devaluations. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. The Company attempts to mitigate currency risk in a number of ways, such as locating factories in the same country or region in which products are sold, hedging contracts, cost reduction and pricing actions or working capital management. However, there can be no assurance that any or all such actions taken by the Company will be fully effective in successfully 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. For further discussion of foreign exchange exposures, risks and uncertainties, refer to the risk factor titled “ The Company’s results can be positively or negatively affected by changes in foreign currency exchange rates ” in Part I, Item 1A. Risk Factors herein.
Non-GAAP Financial Measures
In addition to assessing the Company’s financial condition, results of operations, liquidity and cash flows in accordance with U.S. GAAP, management utilizes certain non-GAAP financial measures, defined below, as part of its internal reviews for purposes of monitoring, evaluating and forecasting the Company’s financial performance, communicating operating results to the Board and assessing related employee compensation measures. Management believes that these non-GAAP financial measures may be helpful to investors in assessing the Company’s overall financial performance, trends and year-over-year comparative results, in addition to the reasons noted below. Non-GAAP financial measures related to operating income, operating margin, net income from continuing operations attributable to Amphenol Corporation, effective tax rate and diluted EPS from continuing operations exclude income and expenses that are not directly related to the Company’s operating performance during the years presented. Items excluded in the presentation of such non-GAAP financial measures in any period may consist of, without limitation, acquisition-related expenses, refinancing-related costs, gains associated with bargain purchase acquisitions, and certain discrete tax items including, but not limited to, (i) the excess tax benefits related to stock-based compensation and (ii) the impact of significant changes in tax law. Non-GAAP financial measures related to net sales exclude the impact of foreign currency exchange rates and acquisitions. Non-GAAP financial measures and their most directly comparable U.S. GAAP financial measures presented within this Item 7 are on a continuing operations basis only and exclude any results associated with discontinued operations. The non-GAAP financial information contained herein is included for supplemental purposes only and should not be considered in isolation or as a substitute for or superior to the related U.S. GAAP financial measures. In addition, these non-GAAP financial measures are not necessarily the same or comparable to similar measures presented by other companies as such measures may be calculated differently or may exclude different items.The non-GAAP financial measures defined below should be read in conjunction with the Company’s financial statements presented in accordance with U.S. GAAP. The reconciliations of these non-GAAP financial measures to the
43Table of Contentsmost directly comparable U.S. GAAP financial measures for the years ended December 31, 2023, 2022 and 2021 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 7:● Adjusted Diluted EPS is defined as diluted earnings per share from continuing operations (as reported in accordance with U.S. GAAP), excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented. Adjusted Diluted EPS is calculated as Adjusted Net Income from continuing operations attributable to Amphenol Corporation, as defined below, divided by the weighted average outstanding diluted shares as reported in the Consolidated Statements of Income.● Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Consolidated Statements of Income, expressed as a percentage of Income from continuing operations before income taxes, as reported in the Consolidated Statements of Income, each excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.● Adjusted Net Income from continuing operations attributable to Amphenol Corporation is defined as Net income from continuing operations attributable to Amphenol Corporation, as reported in the Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.
● Adjusted Operating Income is defined as Operating income, as reported in the Consolidated Statements of Income, excluding income and expenses that are not directly related to the Company’s operating performance during the years presented.
● Adjusted Operating Margin is defined as Adjusted Operating Income (as defined above) expressed as a percentage of Net sales (as reported in the Consolidated Statements of Income).
● Constant Currency Net Sales Growth is defined as the year-over-year percentage change in net sales growth, excluding the impact of changes in foreign currency exchange rates. The Company’s results are subject to volatility related to foreign currency translation fluctuations. As such, management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Organic Net Sales Growth (as defined below) and Constant Currency Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.
● Free Cash Flow is defined as (i) Net cash provided by operating activities from continuing operations (“Operating Cash Flow” - as reported in accordance with U.S. GAAP) less (ii) capital expenditures (as reported in accordance with U.S. GAAP), net of proceeds from disposals of property, plant and equipment (as reported in accordance with U.S. GAAP), all of which are derived from the Consolidated Statements of Cash Flow. Free Cash Flow is an important liquidity measure for the Company, as we believe it is useful for management and investors to assess our ability to generate cash, as well as to assess how much cash can be used to reinvest in the growth of the Company or to return to stockholders through either stock repurchases or dividends.● Organic Net Sales Growth is defined as the year-over-year percentage change in net sales growth resulting from operating volume and pricing changes, and excludes the impact of (i) changes in foreign currency exchange rates (described above), which is outside the control of the Company, and (ii) acquisitions, both of which are taken as a percentage of the respective prior year period(s) net sales. The acquisition impact represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year period(s) and/or prior comparable year period(s) presented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. Management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Constant Currency Net Sales Growth (as defined above) and Organic Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.
Recent Accounting Pronouncements
Refer to Note 1 of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements, including those adopted by the Company.
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Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience along with other assumptions that we believe are reasonable in formulating our bases for making judgements regarding the carrying amounts of assets and liabilities that are not readily apparent elsewhere. Estimates are adjusted as new information becomes available. Actual results could differ from those estimates. The Company believes that the following accounting policies and estimates are most critical since they require significant assumptions and judgments that inherently are subject to risks and uncertainties. The significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements.
Revenue Recognition
The Company’s primary source of revenues consist of product sales to either end customers and their appointed contract manufacturers (including original equipment manufacturers) or to distributors. Our revenues are derived from contracts with customers, which in most cases are customer purchase orders that may be governed by master sales agreements. For each contract, the promise to transfer the control of the products, each of which is individually distinct, is considered to be the identified performance obligation. As part of the consideration promised in each contract, the Company evaluates the customer’s credit risk. Our contracts do not have any significant financing components, as payment terms are generally due net 30 to 120 days after delivery. Although products are almost always sold at fixed prices, in determining the transaction price, we evaluate whether the price is subject to refund (due to returns) or adjustment (due to volume discounts, rebates, or price concessions) to determine the net consideration we expect to be entitled to. We allocate the transaction price to each distinct product based on its relative standalone selling price. Taxes assessed by governmental authorities and collected from the customer, including but not limited to sales and use taxes and value-added taxes, are not included in the transaction price.
The vast majority of our sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer, which generally occurs when we ship or deliver the product from our manufacturing facility to our customers, when our customer accepts and has legal title of the goods, and where the Company has a present right to payment for such goods. Based on the respective contract terms, most of our contracts’ revenues are recognized either (i) upon shipment based on free on board (“FOB”) shipping point or (ii) when the product arrives at its destination. For the years ended December 31, 2023, 2022 and 2021, less than 5% of our net sales were recognized over time, where the associated contracts relate to the sale of goods with no alternative use as they are only sold to a single customer and whose underlying contract terms provide the Company with an enforceable right to payment, including a reasonable profit margin, for performance completed to date, in the event of customer termination. For the contracts recognized over time, we typically record revenue using the input method, based on the materials and labor costs incurred to date relative to the contract’s total estimated costs. This method reasonably depicts when and as control of the goods transfers to the customer, since it measures our progress in producing the goods which is generally commensurate with this transfer of control. Since we typically invoice our customers at the same time that we satisfy our performance obligations, contract assets and contract liabilities related to our contracts with customers recorded in the Consolidated Balance Sheets were not material as of December 31, 2023 and 2022.
Standard product warranty coverage, which provides assurance that our products will conform to the contractually agreed-upon specifications for a limited period from the date of shipment, is typically offered, while extended or separately priced warranty coverage is typically not offered. The warranty claim is generally limited to a credit equal to the purchase price or a promise to repair or replace the product for a specified period of time at no additional charge. We estimate our warranty liability based on historical experience, product history, and current trends.
Income Taxes
Deferred income taxes are provided for revenue and expenses which are recognized in different periods for income tax and financial statement reporting purposes. The Company recognizes the effects of changes in tax laws and rates on deferred income taxes in the period in which legislation is enacted. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. As of December 31, 2023, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,350 related to certain geographies, as it is the
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Company’s intention to permanently reinvest such earnings outside the United States. It is impracticable to calculate the amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated. In addition, the Company remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its investments in foreign subsidiaries. It is not practicable to determine the deferred tax liability with respect to such basis differences. Deferred tax assets are regularly assessed for recoverability based on both historical and anticipated earnings levels and a valuation allowance is recorded when it is more likely than not that these amounts will not be recovered.
The tax effects of an uncertain tax position taken or expected to be taken in income tax returns are recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes.
As a result of the Tax Act, the global intangible low-taxed income (“GILTI”) provision imposed a tax on certain earnings o f foreign subsidiaries. The Company elected an accounting policy to account for GILTI as a period cost. The U.S. Treasury Department has issued final interpretive guidance relating to certain provisions of the Tax Act and proposed additional guidance related to the same provisions. The Company will account for the impact of additional guidance in the period in which any new guidance is released, if appropriate.
FY 2024-12-31 (later)
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 financial condition and results of operations for the years ended December 31, 2024, 2023 and 2022 has been derived from and should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our,” or “us”). The Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “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 meaning, respectively, as these aforementioned non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” within this Item 7 for more information, including our reasons for including non-GAAP financial measures and material limitations with respect to the usefulness of the measures.
In addition to historical information, the following discussion and analysis also contains certain forward-looking statements that are subject to risks and uncertainties, including but not limited to the risk factors described in Part I, Item 1A. Risk Factors 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 (“Annual Report”).
Stock Split
On May 20, 2024, the Company announced that its Board of Directors (the “Board”) approved a two-for-one split of the Company’s Class A Common Stock (“Common Stock”). The stock split was effected in the form of a stock dividend paid to stockholders of record as of the close of business on May 31, 2024. The additional shares were distributed on June 11, 2024, and the Common Stock began trading on a split-adjusted basis on June 12, 2024. The shares of Common Stock retain a par value of $0.001 per share. All current and prior year data impacted by the stock split and presented in this Item 7 and throughout this Annual Report herein, including, but not limited to, number of shares and per share information, earnings per share, stock-based compensation data and dividends per share amounts, among others, have been adjusted to reflect the effect of the stock split and to conform to the current year presentation. Refer to Note 1 of the accompanying Notes to Consolidated Financial Statements for further information related to the stock split.
Overview
General
Amphenol is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial, high-speed and specialty cable. In 2024, approximately 65% 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
● defense and commercial aerospace applications.
The Company’s products are used in a wide variety of applications by a broad array of customers around the world. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. For many years, customers have generally been consolidating their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining geographic flexibility and 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
27Table of Contentsmultinational customers, while at the same time offering a level of resiliency and diversification against local risks and challenges that may emerge in any single geography.
Reportable Business Segments
The Company aligns its businesses into the following three reportable business segments:
● Harsh Environment Solutions – the Harsh Environment Solutions segment designs, manufactures and markets a broad range of ruggedized interconnect products, including connectors and interconnect systems, specialty cable, printed circuits and printed circuit assemblies and other products for use in the industrial, defense, commercial aerospace, automotive, mobile networks and information technology and data communications end markets.● Communications Solutions – the Communications Solutions segment designs, manufactures and markets a broad range of connector and interconnect systems, including high speed, radio frequency, power, fiber optic and other products, coaxial and high-speed cable, as well as antennas, for use in the information technology and data communications, mobile devices, industrial, mobile networks, broadband communications, automotive, commercial aerospace and defense end markets.
● Interconnect and Sensor Systems – the Interconnect and Sensor Systems segment designs, manufactures and markets a broad range of sensors, sensor-based systems, connectors and value-add interconnect systems used in the automotive, industrial, information technology and data communications, mobile networks, defense and commercial aerospace end markets.
This alignment reinforces the Company’s entrepreneurial culture and enables clear accountability of each of our business unit general managers, while enhancing the scalability of Amphenol’s business for the future. F or further details related to the Company’s reportable business segments, refer to Note 13 of the Notes to Consolidated Financial Statements herein.
Strategy
The Company’s strategy is to provide our customers with comprehensive design capabilities, a broad selection of products and a high level of quality and 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.
The Company’s strategic objective is to further enhance its position in its served markets by pursuing the following success factors:
● Pursue broad market diversification;
● Develop high-technology performance-enhancing solutions;
● Expand global presence;
● Control costs;
● Pursue strategic acquisitions and investments; and
● Foster collaborative, entrepreneurial management.
In 2024 , the Company reported net sales, operating income and net income attributable to Amphenol Corporation of $15,222.7, $3,156.9, and $2,424.0, respectively, representing an increase of 21%, 23% and 26% from 2023, respectively. In 2024, the Company’s net income attributable to Amphenol Corporation was impacted by (a) excess tax benefits of $142.6 related to stock-based compensation resulting from stock option exercises and (b) a discrete tax benefit of $18.6 related to the settlement of tax audits and associated lapses of statutes of limitation, along with a difference in a non-U.S. tax filing position, partially offset by (c) acquisition-related expenses of $145.6 ($119.3 after-tax) comprised primarily of (i) external transaction costs associated with acquisitions and the amortization related to the value associated with acquired backlog resulting from the Carlisle Interconnect Technologies (“CIT”) acquisition (such acquisition-related expenses aggregating $127.4 are presented separately in the Consolidated Statements of Income) and (ii) the amortization of acquisition-related inventory step-up costs of $18.2 associated with the CIT acquisition (such costs are
28Table of Contentsrecorded in Cost of sales in the Consolidated Statements of Income) . In 2023, the Company’s net income attributable to Amphenol Corporation was impacted by (a) excess tax benefits of $82.4 related to stock-based compensation resulting from stock option exercises and (b) the gain of $5.4 on a bargain purchase acquisition that closed in the second quarter of 2023, partially offset by (c) acquisition-related expenses of $34.6 ($30.2 after-tax) comprised primarily of external transaction costs, as well as the amortization of $12.4 related to the value associated with acquired backlog resulting from three of the acquisitions that closed in 2023. Excluding the effects of these items, Adjusted Operating Income and Adjusted Net Income attributable to Amphenol Corporation both increased by 27% in 2024 compared to 2023. Adjusted Operating Income and Adjusted Net Income attributable to Amphenol Corporation are both non-GAAP financial measures, each as defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7. 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 net cash provided by operating activities (“Operating Cash Flow”). The Company uses Operating Cash Flow to fund capital expenditures and acquisitions, repurchase shares of the Company’s Common Stock, pay dividends and reduce indebtedness. In 2024, the Company generated Operating Cash Flow of $2,814.7 and Free Cash Flow of $2,157.1, compared to Operating Cash Flow of $2,528.7 and Free Cash Flow of $2,159.9 in 2023. 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.
Inflation Reduction Act of 2022
The Inflation Reduction Act of 2022 (the “IRA”), a tax and spending package that introduced several tax-related provisions, including a 15% corporate alternative minimum tax (“CAMT”) on certain large corporations and a 1% excise tax on certain corporate stock repurchases, was enacted into law in 2022. Companies were required to reassess their valuation allowances for certain affected deferred tax assets in the period of enactment but did not need to remeasure deferred tax balances for the related tax accounting implications of the CAMT. The IRA provisions, which became effective for Amphenol beginning on January 1, 2023, did not have a material impact on the Company during the years ended December 31, 2024 and 2023. While the full impact of these provisions in the future depends on several factors, including interpretive regulatory guidance, which has not yet been released, the Company does not currently believe that the provisions of the IRA, including several other non-tax related provisions, will have a material impact on its financial condition, results of operations, liquidity and cash flows.
Pillar Two Framework
The Organization for Economic Co-operation and Development (OECD)/G20 Inclusive Framework, known as Pillar Two, provides guidance for a global minimum tax. This guidance lays out a common approach for adopting the global minimum tax and enacting local legislation codifying the provisions that all 142 countries in the Inclusive Framework agreed to by consensus. The European Union (“EU”) member states have agreed to adopt these rules in two stages. The first component became effective on January 1, 2024, and the second component became effective on January 1, 2025. Non-EU countries have enacted or are expected to enact legislation on a similar timeline. Certain countries in which we operate have already enacted legislation to adopt the Pillar Two framework, while several other countries are expected to also implement similar legislation with varying effective dates in the future. When and how this framework is adopted or enacted by the various countries in which we do business will increase tax complexity and may increase uncertainty and adversely affect our provision for income taxes in the U.S. and non-U.S. jurisdictions. The Company has done a preliminary review of currently enacted legislation. The initial implementation did not have a material impact on the Company’s consolidated financial statements during the year ended December 31, 2024, and it is not currently expected to have a material impact on the Company’s operations, financial condition or cash flows in the future. However, the Company will continue to evaluate the potential impact of Pillar Two on the Company and its results as additional countries adopt legislation and issue individual guidance on their enacted legislation.29Table of Contents
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,
20242023
2022Net sales
100.0
%
100.0
%
100.0
%
Cost of sales66.2
67.5
68.1
Acquisition-related expenses0.8
0.3
0.2
Selling, general and administrative expenses12.2
11.9
11.3
Operating income20.7
20.4
20.5
Interest expense(1.4)
(1.1)
(1.0)
Gain on bargain purchase acquisition
—
—
—
Other income (expense), net0.5
0.2
0.1
Income before income taxes
19.819.6
19.5
Provision for income taxes(3.7)
(4.1)
(4.4)
Net income
16.015.5
15.2
Net income attributable to noncontrolling interests(0.1)
(0.1)
(0.1)
Net income attributable to Amphenol Corporation15.9
%15.4
%
15.1
%Note: Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
2024 Compared to 2023Net sales were $15,222.7 for the year ended December 31, 2024 compared to $12,554.7 for the year ended December 31, 2023, representing an increase of 21% in both U.S. dollars and constant currencies, as well as 13% organically (excluding both currency and acquisition impacts), compared to the prior year. The increase in net sales in 2024 was driven by strong organic growth in the Communications Solutions segment and moderate organic growth in the Interconnect and Sensor Systems segment and Harsh Environment Solutions segment, along with contributions from the Company’s acquisition program, all as described below. From an end market standpoint, the increase in net sales was driven by strong organic growth in the information technology and data communications (“IT datacom”), mobile devices, commercial aerospace and defense markets and moderate organic growth in the automotive and mobile networks markets, along with contributions from the Company’s acquisition program, partially offset by organic declines in the industrial and broadband communications markets. Net sales to the IT datacom market increased approximately $1,334.2, as we experienced strong growth across a broad array of applications, in particular the continued acceleration in and strong demand for products used in next-generation artificial intelligence-related applications, along with growth in servers, networking equipment, cloud storage, and consumer electronics. Net sales to the industrial market increased approximately $452.1, primarily driven by contributions from acquisitions, along with growth in mass transit, battery and electric heavy vehicles, alternative energy, instrumentation and medical applications, which were partially offset by moderations in factory and building automation, transportation, oil and gas, marine and heavy equipment applications. Net sales to the commercial aerospace market increased approximately $382.9, primarily due to contributions from acquisitions, in particular the CIT acquisition, along with broad-based strength in demand from nearly all commercial aircraft manufacturers across a broad range of platforms. Net sales to the defense market increased approximately $214.0, driven by broad-based strength across nearly all defense applications, particularly space-related, avionics, communications, airframe, and ground vehicle applications, as well as contributions from acquisitions. Net sales to the automotive market increased approximately $168.3, reflecting strength in demand from power management, infotainment communications, safety and security systems and antenna and related assemblies, along with contributions from acquisitions, partially offset by moderations in electric and hybrid drive train platforms. Net sales to the mobile devices market increased approximately $131.5, driven by growth in sales in most mobile device applications, including smartphones, laptops, and wearable and hearable devices, partially offset by a moderation in tablets. Net sales to the mobile networks market increased approximately $50.2, driven primarily by contributions from acquisitions, along with growth in demand from mobile network operators and wireless equipment manufacturers. Net sales to the broadband communications market decreased approximately $65.2, driven by moderations in demand from broadband service operators.Net sales in the Harsh Environment Solutions segment (approximately 29% of net sales) increased 25% in both U.S. dollars and constant currencies, as well as 4% organically, in 2024, compared to 2023. The sales growth in 2024 was primarily driven by contributions from the Company’s acquisition program, in particular the CIT acquisition, along with
30Table of Contentsstrong organic growth in the defense, commercial aerospace and IT datacom markets, partially offset by organic declines in the automotive and industrial markets.Net sales in the Communications Solutions segment (approximately 42% of net sales) increased 29% in both U.S. dollars and constant currencies, as well as 27% organically, in 2024, compared to 2023. The sales growth in 2024 was primarily driven by strong organic growth in the IT datacom, automotive, mobile devices and industrial markets and moderate growth in the mobile networks markets, along with modest contributions from the Company’s acquisition program, partially offset by an organic decline in the broadband communications market.Net sales in the Interconnect and Sensor Systems segment (approximately 29% of net sales) increased 9% in both U.S. dollars and constant currencies, as well as 4% organically, in 2024, compared to 2023. The sales growth in 2024 was primarily driven by contributions from the Company’s acquisition program, along with strong organic growth in the IT datacom market and moderate growth in the automotive market, partially offset by organic declines in the industrial and defense markets.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, geography and consolidated, for the year ended December 31, 2024 compared to the year ended December 31, 2023:
Percentage Growth (relative to prior year) (1)
Net sales
Foreign
Constant
Organic
growth in
currency
Currency Net
Acquisition
Net Sales
U.S. Dollars (2)
impact (3)
Sales Growth (4)
impact (5)
Growth (4)
Net sales by:20242023(GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
Segment:
Harsh Environment Solutions
$4,417.4$3,530.825%
—
%
25%
21%
4%
Communications Solutions
6,323.8
4,912.829%
—%
29%
2%
27%
Interconnect and Sensor Systems
4,481.5
4,111.1
9%
—
%
9%
5%
4%
Consolidated
$15,222.7
$12,554.721%
—
%
21%
8%
13%
Geography (6) :
United States
$5,272.3$4,405.420%
—
%
20%
16%
3%
Foreign
9,950.4
8,149.3
22%
—%
23%
4%
19%
Consolidated
$15,222.7
$12,554.721%
—
%
21%
8%
13%
(1) Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
(2) Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the Notes to Consolidated 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.
(3) Foreign currency translation impact, a non-GAAP measure, represents the percentage impact on net sales resulting from foreign currency exchange rate changes in the current reporting year compared to the prior reporting year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the prior year from current year net sales, taken as a percentage of the prior year’s net sales.
(4) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section of this Item 7.
(5) Acquisition impact, a non-GAAP measure, represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year and/or prior comparable year presented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. Acquisition impact is calculated as a percentage of the respective prior year period(s) net sales.
(6) Net sales by geographic area are based on the customer location to which the product is shipped.
The increase in foreign net sales in 2024 compared to 2023 was primarily driven by robust sales growth in Asia. The comparatively stronger U.S. dollar in 2024 had the effect of decreasing sales by approximately $39.6, compared to 2023.Selling, general and administrative expenses were $1,855.4, or 12.2% of net sales, for 2024, compared to $1,489.9, or 11.9% of net sales, for 2023. The increase in Selling, general and administrative expenses and such expenses as a percentage of net sales in 2024 was primarily driven by the effect of acquisitions, which currently have higher selling, general and administrative expenses as a percentage of net sales compared to the Company average. Administrative expenses increased $148.0 in 2024 and represented approximately 5.0% of net sales in 2024 and 4.8% of net sales in 2023. Research and development expenses increased $110.8 in 2024, primarily related to increases in expenses for new product development, and represented approximately 3.0% of net sales in 2024 and 2.7% of net sales in 2023. Selling and marketing expenses increased $106.7 in 2024 compared to 2023, and represented approximately 4.2% of net sales in 2024 and 4.3% of net sales in 2023.31Table of ContentsOperating income was $3,156.9, or 20.7% of net sales, in 2024, compared to $2,559.6, or 20.4% of net sales, in 2023. Operating income in 2024 included acquisition-related expenses of $145.6, comprised primarily of (i) external transaction costs associated with acquisitions and the amortization related to the value associated with acquired backlog resulting from the CIT acquisition (such acquisition-related expenses aggregating $127.4 are presented separately in the Consolidated Statements of Income) and (ii) the amortization of acquisition-related inventory step-up costs of $18.2 associated with the CIT acquisition (such costs are recorded in Cost of sales in the Consolidated Statements of Income). Operating income in 2023 included acquisition-related expenses of $34.6, comprised primarily of external transaction costs, as well as the amortization related to the value associated with acquired backlog resulting from three of the acquisitions that closed in 2023. Acquisition-related expenses in 2023 are presented separately in the Consolidated Statements of Income. The acquisition-related expenses in 2024 and 2023 had the effect of decreasing net income by $119.3, or $0.09 per share, and $30.2, or $0.02 per share, respectively. Acquisition-related expenses are presented separately in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, each as defined below in the “Non-GAAP Financial Measures” section within this Item 7, were $3,302.5 and 21.7% of net sales, respectively, in 2024, and $2,594.2 and 20.7% of net sales, respectively, in 2023. The increase in Adjusted Operating Income and Adjusted Operating Margin in 2024 relative to 2023 was primarily driven by strong operating performance on the higher sales volumes, partially offset by the negative impact on operating margin related to acquisitions completed within the prior 12 months that are currently operating below the average operating margin of the Company.Operating income for the Harsh Environment Solutions segment in 2024 was $1,093.2, or 24.7% of net sales, compared to $943.9, or 26.7% of net sales in 2023. The decrease in operating margin for the Harsh Environment Solutions segment for 2024 compared to 2023 was primarily driven by the negative impact on operating margin related to acquisitions completed within the prior 12 months, particularly the CIT acquisition, that are currently operating below the average operating margin of the Company.Operating income for the Communications Solutions segment in 2024 was $1,569.6, or 24.8% of net sales, compared to $1,063.5, or 21.6% of net sales in 2023. The increase in operating margin for the Communications Solutions segment for 2024 compared to 2023 was primarily driven by strong operating performance on the higher sales volumes.Operating income for the Interconnect and Sensor Systems segment in 2024 was $825.9, or 18.4% of net sales, compared to $753.7, or 18.3% of net sales in 2023. The modest increase in operating margin for the Interconnect and Sensor Systems segment for 2024 compared to 2023 was primarily driven by strong operating performance on the higher sales volumes, partially offset by the negative impact on operating margin related to acquisitions completed within the prior 12 months that are currently operating below the average operating margin of the Company.Interest expense was $217.0 in 2024 compared to $139.5 in 2023. The increase in interest expense was primarily driven by higher average borrowing levels, resulting from the issuances of new senior notes during 2024. Refer to Note 4 of the Notes to Consolidated Financial Statements for further information related to the Company’s debt.Other income (expense), net was $72.0 in 2024 compared to $29.3 in 2023. The increase was primarily driven by interest income earned on cash and cash equivalents on hand, resulting from increased levels of cash on hand partially driven by the issuance of the new October Senior Notes (defined below) in the fourth quarter of 2024 in anticipation of the acquisition of CommScope’s Mobile Networks Business (as defined and discussed below within this Item 7 and in Note 15 of the accompanying Notes to Consolidated Financial Statements herein) which closed on January 31, 2025, along with increased interest rates.Provision for income taxes was at an effective rate of 18.9% in 2024 and 20.7% in 2023. Provision for income taxes in 2024 included (i) excess tax benefits of $142.6 from stock option exercises, (ii) a discrete tax benefit related to the settlement of tax audits and associated lapses of statutes of limitation, along with a difference in a non-U.S. tax filing position, and (iii) the tax effects of the aforementioned acquisition-related expenses during the year. Provision for income taxes in 2023 included (i) excess tax benefits of $82.4 from stock option exercises, (ii) the effect of the gain from the bargain purchase acquisition that closed in the second quarter of 2023, and (iii) the tax effects related to acquisition-related expenses during the year. These items incurred in 2024 and 2023 had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.0% for both 2024 and 2023, 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
32Table of ContentsU.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 attributable to Amphenol Corporation per common share - Diluted (“Diluted EPS”) were $2,424.0 and $1.92, respectively, for 2024, compared to $1,928.0 and $1.55, respectively, for 2023. Excluding the effect of the items listed in the table below, 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 $2,382.1 and $1.89, respectively, for 2024, compared to $1,870.4 and $1.51, respectively, for 2023.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 (each as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2024 and 2023:
20242023
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)
$3,156.9
20.7%
$2,424.018.9%
$1.92
$2,559.6
20.4%
$1,928.020.7%
$1.55
Amortization of acquisition-related inventory step-up costs
18.2
0.1
14.0
—
0.01
—
—
—
—
—Acquisition-related expenses
127.4
0.8
105.3
(0.3)
0.08
34.6
0.3
30.2
(0.2)
0.02
Gain on bargain purchase acquisition
——
——
—
—
—
(5.4)
0.1
—
Excess tax benefits related to stock-based compensation
—
—
(142.6)4.7
(0.11)
—
—
(82.4)
3.4
(0.07)
Discrete tax items
—
—
(18.6)0.6
(0.01)
—
—
—
—
—Adjusted (non-GAAP) (2)
$3,302.521.7%
$2,382.1
24.0
%
$1.89
$2,594.2
20.7
%
$1,870.424.0%
$1.51(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 measures.
(2) All percentages and per share amounts in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
2023 Compared to 2022Net sales were $12,554.7 for the year ended December 31, 2023 compared to $12,623.0 for the year ended December 31, 2022, which represented a decrease of 1% in U.S. dollars and 3% organically (excluding both currency and acquisition impacts), while flat in constant currencies compared to the prior year. The decrease in net sales in 2023 was driven by a sales decline in the Communications Solutions segment, partially offset by growth in the Harsh Environment Solutions and Interconnect and Sensor Systems segments, as described below. From an end market standpoint, the decrease in net sales was driven by organic declines in the IT datacom, mobile networks, mobile devices, industrial and broadband communications markets, partially offset by robust organic growth in the automotive, defense and commercial aerospace markets, along with contributions from the Company’s acquisition program. Net sales to the automotive market increased approximately $310.5, reflecting broad-based strength across our global automotive markets, in particular, next-generation electronics, including electric and hybrid drive trains. Net sales to the defense market increased approximately $237.6, driven by broad-based strength across virtually all defense applications, particularly related to naval, aircraft engines, helicopters, communications, and space-related applications, as well as contributions from acquisitions. Net sales to the commercial aerospace market increased approximately $117.9, primarily due to increased broad-based demand across all aircraft applications, in particular larger passenger planes. Net sales to the industrial market remained flat, as contributions from acquisitions, along with growth in medical, oil and gas, mass transit and transportation applications were offset by moderations in industrial instrumentation, battery and electric heavy vehicles, factory automation and heavy equipment applications. Net sales to the IT datacom market decreased approximately $362.8, as we experienced moderations across a broad array of applications, including networking equipment, cloud storage, transmission, consumer electronics and servers, partially offset by strong growth in artificial intelligence-related applications. Net sales to the mobile networks market decreased approximately $163.9, driven by
33Table of Contentsbroad-based moderations in demand from mobile network operators and wireless equipment manufacturers, partially offset by contributions from acquisitions. Net sales to the mobile devices market decreased approximately $161.5, driven by declines in sales in laptops, wearable devices, tablets and production-related products, partially offset by growth in smartphones. Net sales to the broadband communications market decreased approximately $46.4, driven by moderations in demand from broadband service operators.Net sales in the Harsh Environment Solutions segment (approximately 28% of net sales) increased 14% in U.S. dollars, 14% in constant currencies and 9% organically, in 2023, compared to 2022. The sales growth in 2023 was primarily driven by strong organic growth in the defense, commercial aerospace, automotive and IT datacom markets, along with contributions from the Company’s acquisition program, partially offset by organic declines in the industrial and mobile networks markets.Net sales in the Communications Solutions segment (approximately 39% of net sales) decreased 13% in U.S. dollars, 12% in constant currencies and 13% organically, in 2023, compared to 2022. The sales decline in 2023 was primarily driven by organic declines in the IT datacom, industrial, mobile networks, mobile devices and broadband communications markets, partially offset by strong organic growth in the automotive market, along with modest contributions from the Company’s acquisition program.Net sales in the Interconnect and Sensor Systems segment (approximately 33% of net sales) increased 6% in U.S. dollars, 7% in constant currencies and 3% organically, in 2023, compared to 2022. The sales growth in 2023 was primarily driven by strong organic growth in the automotive and commercial aerospace markets, and moderate growth in the industrial and defense markets, along with contributions from the Company’s acquisition program, partially offset by organic declines in the IT datacom and mobile networks markets.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, geography and consolidated, for the year ended December 31, 2023 compared to the year ended December 31, 2022:
Percentage Growth (relative to prior year) (1)
Net sales
Foreign
Constant
Organic
growth in
currency
Currency Net
Acquisition
Net Sales
U.S. Dollars (2)
impact (3)
Sales Growth (4)
impact (5)
Growth (4)
Net sales by:20232022(GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
(non-GAAP)
Segment:
Harsh Environment Solutions
$3,530.8$3,107.214%
—%
14%
5%
9%
Communications Solutions
4,912.8
5,652.4(13)%
(1)%
(12)%
1%
(13)%
Interconnect and Sensor Systems
4,111.1
3,863.4
6%
—%
7%
3%
3%
Consolidated
$12,554.7
$12,623.0(1)%
—%
—%
3%
(3)%
Geography (6) :
United States
$4,405.4$4,155.26%
—
%
6%
5%
1%
Foreign
8,149.3
8,467.8
(4)%
(1)%
(3)%
1%
(4)%
Consolidated
$12,554.7
$12,623.0(1)%
—%
—%
3%
(3)%
(1) Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
(2) Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the Notes to Consolidated 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.
(3) Foreign currency translation impact, a non-GAAP measure, represents the percentage impact on net sales resulting from foreign currency exchange rate changes in the current reporting year compared to the prior reporting year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the prior year from current year net sales, taken as a percentage of the prior year’s net sales.
(4) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section of this Item 7.
(5) Acquisition impact, a non-GAAP measure, represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year and/or prior comparable year presented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. Acquisition impact is calculated as a percentage of the respective prior year period(s) net sales.
(6) Net sales by geographic area are based on the customer location to which the product is shipped.
The decrease in foreign net sales in 2023 compared to 2022 was primarily driven by sales declines in Asia. The comparatively stronger U.S. dollar in 2023 had the effect of decreasing sales by approximately $61.1, compared to 2022.Selling, general and administrative expenses were $1,489.9, or 11.9% of net sales, for 2023, compared to $1,420.9, or 11.3% of net sales, for 2022. The increase in Selling, general and administrative expenses as a percentage of net sales
34Table of Contentsin 2023 was primarily driven by the effect of acquisitions, which currently have higher selling, general and administrative expenses as a percentage of net sales compared to the Company average. Administrative expenses increased $26.2 in 2023 and represented approximately 4.8% of net sales in 2023 and 4.6% of net sales in 2022. Research and development expenses increased $18.6 in 2023, primarily related to increases in expenses for new product development, and represented approximately 2.7% of net sales in 2023 and 2.6% of net sales in 2022. Selling and marketing expenses increased $24.2 in 2023 compared to 2022, and represented approximately 4.3% of net sales in 2023 and 4.1% of net sales in 2022.Operating income was $2,559.6, or 20.4% of net sales, in 2023, compared to $2,585.8, or 20.5% of net sales, in 2022. Operating income in 2023 included acquisition-related expenses of $34.6, comprised primarily of external transaction costs, as well as the amortization related to the value associated with acquired backlog resulting from three of the acquisitions that closed in 2023. Operating income in 2022 included acquisition-related expenses of $21.5, comprised primarily of the amortization related to the value associated with acquired backlog resulting from two acquisitions that closed in 2022, along with external transaction costs. The acquisition-related expenses in 2023 and 2022 had the effect of decreasing net income by $30.2, or $0.02 per share, and $18.4, or $0.01 per share, respectively. Acquisition-related expenses in 2023 and 2022 were presented separately in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, each as defined below in the “Non-GAAP Financial Measures” section within this Item 7, were $2,594.2 and 20.7% of net sales, respectively, in 2023, and $2,607.3 and 20.7% of net sales, respectively, in 2022. While Adjusted Operating Income decreased modestly from 2022, Adjusted Operating Margin remained flat in 2023 relative to 2022, as the benefit of pricing actions and strong operational performance were offset by the operating leverage on the lower sales volumes, along with the negative impact on operating margin related to acquisitions that are currently operating below the average operating margin of the Company.Operating income for the Harsh Environment Solutions segment in 2023 was $943.9, or 26.7% of net sales, compared to $801.6, or 25.8% of net sales in 2022. The increase in operating margin for the Harsh Environment Solutions segment for 2023 compared to 2022 was primarily driven by normal operating leverage on the higher sales volumes and strong operational performance, combined with the benefit of pricing actions, all partially offset by the negative impact on operating margin related to acquisitions that are currently operating below the average operating margin of the Company.Operating income for the Communications Solutions segment in 2023 was $1,063.5, or 21.6% of net sales, compared to $1,245.7, or 22.0% of net sales in 2022. The decrease in operating margin for the Communications Solutions segment for 2023 compared to 2022 was primarily driven by operating leverage on the lower sales volumes, partially offset by the benefit of pricing actions and strong operational performance.Operating income for the Interconnect and Sensor Systems segment in 2023 was $753.7, or 18.3% of net sales, compared to $716.5, or 18.5% of net sales in 2022. The modest decrease in operating margin for the Interconnect and Sensor Systems segment for 2023 compared to 2022 was primarily driven by the negative impact on operating margin related to acquisitions that are currently operating below the average operating margin of the Company, partially offset by the normal operating leverage on the higher sales volumes combined with the benefit of pricing actions.Interest expense was $139.5 in 2023 compared to $128.4 in 2022. The increase in interest expense was driven by the higher interest rate environment, which primarily impacted borrowings under the Company’s U.S. Commercial Paper Program that were outstanding throughout much of 2023. Refer to Note 4 of the Notes to Consolidated Financial Statements for further information related to the Company’s debt.Provision for income taxes was at an effective rate of 20.7% in 2023 and 22.3% in 2022. Provision for income taxes in 2023 included (i) excess tax benefits of $82.4 from stock option exercises, (ii) the effect of the gain from the bargain purchase acquisition that closed in the second quarter of 2023, and (iii) the tax effects related to acquisition-related expenses during the year. Provision for income taxes in 2022 included (i) excess tax benefits of $56.0 from stock option exercises, and (ii) the tax effects related to acquisition-related expenses during the year. These items incurred in 2023 and 2022 had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.0% and 24.5% for 2023 and 2022, 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.
35Table of ContentsNet income attributable to Amphenol Corporation and Diluted EPS were $1,928.0 and $1.55, respectively, for 2023, compared to $1,902.3 and $1.53, respectively, for 2022. Excluding the effect of the items listed in the table below, 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 $1,870.4 and $1.51, respectively, for 2023, compared to $1,864.7 and $1.50, respectively, for 2022.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 (each as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2023 and 2022:
20232022
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)
$2,559.6
20.4%
$1,928.020.7%
$1.55
$2,585.8
20.5%
$1,902.322.3%
$1.53Acquisition-related expenses
34.60.3
30.2(0.2)
0.02
21.50.2
18.4(0.1)
0.01
Gain on bargain purchase acquisition
—
—
(5.4)0.1
—
—
—
——
—
Excess tax benefits related to stock-based compensation
—
—
(82.4)3.4
(0.07)
—
—
(56.0)2.3
(0.05)Adjusted (non-GAAP) (2)
$2,594.2
20.7
%
$1,870.424.0%
$1.51
$2,607.320.7%
$1,864.724.5%
$1.50
(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 measures.
(2) All percentages and per share amounts in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding.
Liquidity and Capital Resources
Liquidity and Cash Requirements
At December 31, 2024 and 2023, the Company had cash, cash equivalents and short-term investments of $3,335.4 and $1,660.2, respectively. As of December 31, 2024, more than half of the Company’s cash, cash equivalents and short-term investments on hand was located in the United States, primarily as a result of the proceeds from the issuance of the October Senior Notes in 2024. As of December 31, 2023, the majority of the Company’s cash, cash equivalents and short-term investments on hand was located outside of the United States. The Company’s primary sources of liquidity are internally generated cash provided by operating activities, our cash, cash equivalents and short-term investments on hand, as well as availability under the U.S. Commercial Paper Program, th e Euro Commercial Paper Program, and the Revolving Credit Facility. The Company believes that these sources of liquidity, along with a ccess to capital markets (which the Company accessed in 2024 in connection with the issuances of both the April Senior Notes and October Senior Notes), provide adequate liquidity to meet both its short-term (next 12 months) and reasonably foreseeable long-term requirements and obligations. The Company’s debt instruments are defined and discussed in more detail below within this Item 7.
Cash Requirements from Known Contractual and Other Obligations
The Company’s primary ongoing cash requirements will be for operating and working capital needs, capital expenditures, product development activities, repurchases of our Common Stock, dividends, debt service, payments associated with the one-time tax on the deemed repatriation of all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries (“Transition Tax”), of which the last annual installment will be paid in the second quarter of 2025, taxes due upon the repatriation of foreign earnings (which will be payable upon the repatriation of such earnings) , funding of pension obligations, and other contractual obligations and commitments (refer to the table below for the Company’s material cash requirements from known contractual and other obligations). The Company may also use cash to fund all or part of the cost of future acquisitions, as has been the case in recent years with the Company’s various acquisitions, including CIT in May 2024, as well as the acquisition of CommScope’s Mobile Networks Business, which closed on January 31, 2025. Capital expenditures are typically in the range of 3% to 4% of
36Table of Contentsnet sales, although spending in 2025 is expected to continue to be slightly elevated to support the significant growth we are experiencing related to artificial intelligence applications in our IT datacom market. The Company’s debt service requirements primarily consist of principal and interest on the Company’s Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility and Commercial Paper Programs (all as defined below). As of December 31, 2024 and 2023, the Company had no borrowings outstanding under the Revolving Credit Facility, U.S. Commercial Paper Program and Euro Commercial Paper Pro gram. However , the Company borrowed under the U.S. Commercial Paper Program throughout much of 2024, the proceeds of which were used for general corporate purposes, including, but not limited to, partially funding the acquisition of CIT in May 2024, as discussed later within this Item 7. Although all such borrowings were repaid before the end of 2024, the Company may make additional borrowings under any of its debt instruments from time to time in the future. To the extent that interest rates change related to floating rate debt and the Company borrows under any of our floating rate debt instruments in the future (Commercial Paper Programs as well as our Revolving Credit Facility), our interest expense and interest payments will be impacted accordingly. Although the Company does not expect changes in interest rates to have a material effect on income or cash flows in 2025, there can be no assurance that interest rates will not change significantly from current levels.The following table summarizes the Company’s material short- and long-term cash requirements from known obligations pursuant to certain contracts and commitments as of December 31, 2024, as well as an estimate of the timing in which such obligations and payments are expected to be satisfied.
Payment Due By Period
Contractual Obligations
Less than
1-3
3-5
More than
(dollars in millions)
Total
1 year
years
years
5 years
Debt (1)
$6,927.9
$401.9
$1,572.2
$1,468.0
$3,485.8
Interest related to senior notes
2,110.4242.6450.1352.21,065.5
Operating leases (2)
448.9121.1155.679.193.1
Purchase obligations (3)
1,391.11,321.863.74.41.2
Accrued pension and postretirement benefit obligations (4)
49.35.59.49.724.7
Transition tax (5)
32.832.8
—
—
—
Total (6)
$10,960.4
$2,125.7
$2,251.0
$1,913.4
$4,670.3(1) The Company has excluded expected interest payments on the Revolving Credit Facility, U.S. Commercial Paper Program and Euro Commercial Paper Program from the above table, as this calculation is largely dependent on average debt levels during each of the years presented. The actual interest payments made related to the Company’s Revolving Credit Facility and both Commercial Paper Programs combined, in 2024, were approximately $25.8. Expected debt levels, and therefore expected interest payments, are difficult to predict, as they are significantly impacted by items such as future acquisitions, repurchases of Common Stock and dividend payments, as well as payments or additional borrowings made to reduce or increase the underlying revolver balance.(2) The Company’s operating lease payments included in this table reflect the future minimum undiscounted fixed lease payments, which serve as the basis for calculating the Company’s operating lease liabilities as of December 31, 2024. The table above excludes any variable lease payments not included in the measurement of the Company’s right-of-use assets and operating lease liabilities, due to their uncertainty. Finance leases are not material to the Company individually or in the aggregate and as such have been excluded from the table above.
(3) Purchase obligations relate primarily to open purchase orders for goods and services, including but not limited to, raw materials and components to be used in production.
(4) This table includes estimated benefit payments expected to be made under the Company’s unfunded pension and postretirement benefit plans, as well as the anticipated minimum required contributions under the Company’s funded pension plans, the most significant of which covers certain of its U.S. employees. Over the past several years, there has been no minimum requirement for Company contributions to our defined benefit pension plans in the United States (“U.S. Pension Plans”) due to prior contributions made in excess of minimum requirements, and as a result, there was no anticipated minimum required contribution included in the table above related to the U.S. Pension Plans for 2025. The Company did not make any voluntary contributions to its U.S. Pension Plans in 2024 and 2023. It is not possible to reasonably estimate expected required contributions in the above table after 2025, since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets.(5) As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”) in December 2017, the United States changed to a modified territorial tax system, which significantly reduced the U.S. tax expense associated with the remittance of foreign earnings, among other changes. The Tax Act also imposed the Transition Tax associated with all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries. As a result, on December 31, 2017, the Company recorded a provisional U.S. tax expense for the Transition Tax, which was adjusted and finalized in 2018. The seventh installment of the Transition Tax was paid in the second quarter of 2024, and the Company will pay the balance of the Transition Tax, net of applicable tax credits and deductions, in the second quarter of 2025, as permitted under the Tax Act. The table above reflects the remaining amounts associated with the Transition Tax, which is net of applicable tax credits and deductions.(6) As of December 31, 2024, the Company has recorded net liabilities of approximately $209.7 related to unrecognized tax benefits. These liabilities have been excluded from the above table due to the high degree of uncertainty regarding the timing of potential future cash flows. It is difficult to make a reasonably reliable estimate of the amount and period in which all of these liabilities might be paid.
Repatriation of Foreign Earnings and Related Income Taxes
The Company has previously indicated an intention to repatriate most of its pre-2024 accumulated earnings and has accrued the foreign and U.S. state and local taxes, if applicable, on those earnings, as appropriate. The associated tax payments are due as the repatriations are made. The Company intends to indefinitely reinvest the remaining pre-2024 foreign earnings. The Company intends to distribute certain 2024 foreign earnings and, as of December 31, 2024, has accrued foreign and U.S. state and local taxes, where applicable, associated with the foreign earnings that it intends to
37Table of Contentsrepatriate, and intends to indefinitely reinvest the remaining 2024 foreign earnings. The Company intends to (i) evaluate certain post-2024 earnings for repatriation, and will accrue for those distributions where appropriate, and (ii) indefinitely reinvest all other foreign earnings. In addition, the Company paid its seventh annual installment of the Transition Tax, net of applicable tax credits and deductions, in the second quarter of 2024, and will pay the balance of the Transition Tax, net of applicable tax credits and deductions, in 2025, as permitted under the Tax Act. As of December 31, 2024, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,550 related to certain geographies, as it is the Company’s intention to permanently reinvest such earnings outside the United States. It is impracticable to calculate the amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated.
Cash Flow Summary
The following table summarizes the Company’s cash flows from operating, investing and financing activities for the years ended December 31, 2024, 2023 and 2022, as reflected in the Consolidated Statements of Cash Flow:
Year Ended December 31,
20242023
2022Net cash provided by operating activities
$2,814.7
$2,528.7
$
2,174.6Net cash used in investing activities(2,648.6)
(1,393.7)
(731.1)Net cash provided by (used in) financing activities1,729.9
(1,012.4)
(1,196.7)Effect of exchange rate changes on cash and cash equivalents
(54.0)
(20.7)
(70.8)Net increase in cash and cash equivalents$
1,842.0
$
101.9
$
176.0
Operating Activities
The ability to generate cash from operating activities is one of the Company’s fundamental financial strengths. Operating Cash Flow was $2,814.7 in 2024, compared to $2,528.7 in 2023 and $2,174.6 in 2022. The increase in Operating Cash Flow in 2024 compared to 2023 is primarily due to the increase in net income, partially offset by a higher usage of cash related to the change in working capital, as discussed below. The increase in Operating Cash Flow in 2023 compared to 2022 was primarily due to an overall decrease in the net components of working capital in 2023, as discussed in more detail below.In 2024, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $210.5, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in accounts receivable of $586.8, inventories of $200.1 and prepaid expenses and other current assets of $106.8, partially offset by increases in accounts payable of $423.1 and accrued liabilities, including income taxes, of $260.1. In 2023, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow decreased $149.8, excluding the impact of acquisitions and foreign currency translation, primarily due to decreases in accounts receivable of $146.4 and inventories of $71.4, partially offset by a decrease in accounts payable of $34.6 and an increase in prepaid expenses and other current assets of $34.1. In 2022, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $193.1, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in inventories of $278.5 and accounts receivable of $273.1, partially offset by increases in accrued liabilities, including income taxes, of $246.3 and accounts payable of $62.5, and a decrease in prepaid expenses and other current assets of $49.7.The following describes the significant changes in the amounts as presented on the accompanying Consolidated Balance Sheets at December 31, 2024 compared to December 31, 2023. Accounts receivable increased $669.5 to $3,287.9, primarily driven by higher sales in the fourth quarter of 2024 relative to the fourth quarter of 2023, along with the impact of the two acquisitions (the “2024 Acquisitions”) that closed during 2024, partially offset by the effect of translation from exchange rate changes (“Translation”) at December 31, 2024 compared to December 31, 2023. Days sales outstanding at December 31, 2024 and 2023 were 68 days and 70 days, respectively. Inventories increased $378.6 to $2,545.7, primarily driven by the impact of the 2024 Acquisitions, along with the impact of higher sales in 2024 relative to the prior year, partially offset by Translation. Inventory days at December 31, 2024 and 2023 were 80 days and 85 days, respectively. Prepaid expenses and other current assets increased $127.4 to $517.0, primarily due to increases in various prepaid expenses and other current receivables, along with the impact of the 2024 Acquisitions. Property, plant and equipment, net, increased $397.1 to $1,711.8, primarily due to capital expenditures of $665.4 and the impact of the 2024 Acquisitions, partially offset by depreciation of $390.6, disposals and Translation. Goodwill increased $1,143.8 to $8,236.2, primarily driven by goodwill recognized from the 2024 Acquisitions, in particular the
38Table of ContentsCIT acquisition, partially offset by Translation. Other intangible assets, net, increased $390.3 to $1,225.1, primarily due to the recognition of certain intangible assets related to the 2024 Acquisitions, in particular the CIT acquisition, partially offset by amortization of $154.7 associated with the Company’s current intangible assets as well as measurement period adjustments related to certain intangible assets associated with acquisitions that closed late in 2023. Other long-term assets increased $131.9 to $581.1, primarily due to an increase in operating lease right-of-use assets resulting from both new and renewed lease agreements entered into during 2024 and acquired leases resulting from acquisitions. Accounts payable increased $468.5 to $1,819.4, primarily due to increased purchasing activity related to the higher sales levels in 2024, along with the impact of the 2024 Acquisitions, partially offset by Translation. Payable days at December 31, 2024 and 2023 were 58 days and 55 days, respectively. Total accrued expenses, including accrued income taxes, increased $414.7 to $1,862.7, primarily as a result of increases in accrued salaries, wages and employee benefits, accrued income taxes, and various other accrued expenses, along with the impact of the 2024 Acquisitions. Accrued pension and postretirement benefit obligations decreased $13.2 to $129.8, primarily due to the impact of higher discount rates used to calculate our projected benefit obligation and funded status of our defined benefit pension plans. Other long-term liabilities, including deferred tax liabilities, increased $65.4 to $886.1, primarily as a result of an increase in long-term lease liabilities resulting from both new and renewed lease agreements entered into during 2024, along with acquired leases resulting from acquisitions.In addition to Operating Cash Flow, the Company also considers Free Cash Flow, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, as a key metric in measuring the Company’s ability to generate cash. The following table reconciles Free Cash Flow to its most directly comparable U.S. GAAP financial measure for the years ended December 31, 2024, 2023 and 2022. Free Cash Flow decreased modestly in 2024 compared to 2023, as the increase in capital expenditures was largely offset by the increase in Operating Cash Flow, as described above. The increase in Free Cash Flow in 2023 compared to 2022 was driven by the increase in Operating Cash Flow, as described above.
20242023
2022Operating Cash Flow (GAAP)
$2,814.7
$2,528.7
$
2,174.6Capital expenditures (GAAP)
(665.4)
(372.8)
(383.8)Proceeds from disposals of property, plant and equipment (GAAP)
7.8
4.0
5.6Free Cash Flow (non-GAAP)
$2,157.1
$2,159.9
$
1,796.4
Investing Activities
Cash flows from investing activities primarily consist of cash flows associated with capital expenditures, proceeds from disposals of property, plant and equipment , net, purchases (sales and maturities) of short- and long-term investments, and acquisitions.Net cash used in investing activities was $2,648.6 in 2024, compared to $1,393.7 in 2023 and $731.1 in 2022. In 2024, net cash used in investing activities was primarily driven by the use of $2,156.4 to fund acquisitions and capital expenditures (net of disposals) of $657.6, partially offset by net sales and maturities of short-term investments of $163.5. In 2023, net cash used in investing activities was primarily driven by the use of $970.4 to fund acquisitions, capital expenditures (net of disposals) of $368.8, and net purchases of short-term investments of $59.4. In 2022, net cash used in investing activities was primarily driven by capital expenditures (net of disposals) of $378.2, the use of $288.2 to fund acquisitions, net purchases of long-term investments of $56.0, and net purchases of short-term investments of $25.2. The elevated capital expenditures in 2024, in particular in the second half of the year, were driven by investments, primarily in support of the growth in our IT datacom and defense markets. We currently expect this elevated level of capital spending to continue into 2025 to support the significant growth we are experiencing related to artificial intelligence applications in our IT datacom market.
Financing Activities
Cash flows from financing activities primarily consist of cash flows associated with borrowings and repayments of the Company’s credit facilities and other long-term debt, repurchases of Common Stock, proceeds from stock option exercises, dividend payments, and distributions to and purchases of noncontrolling interests.
Net cash provided by financing activities was $1,729.9 in 2024, compared to net cash used in financing activities of $1,012.4 in 2023 and $1,196.7 in 2022. In 2024, net cash provided by financing activities was primarily driven by (i) net
39Table of Contentscash proceeds from borrowings of $2,991.3, primarily related to the issuances of the April Senior Notes and October Senior Notes, each as defined below, and (ii) cash proceeds of $447.4 from the exercise of stock options, partially offset by (a) repurchases of the Company’s Common Stock of $689.3, (b) dividend payments of $595.1, (c) debt repayments of $364.4, primarily related to the redemption of the 3.20% Senior Notes in the second quarter of 2024, (d) distributions to and purchases of noncontrolling interests of $33.0, and (e) payments of $28.4 related to debt financing costs associated with the Company’s amended and restated revolving credit facility in March 2024 as well as the issuances of the April Senior Notes and October Senior Notes, each as defined below. In 2023, net cash used in financing activities was primarily driven by (i) net repayments of $632.6 related to the Company’s commercial paper programs, primarily the U.S. Commercial Paper Program, (ii) repurchases of the Company’s Common Stock of $585.1, (iii) dividend payments of $500.6, (iv) distributions to and purchases of noncontrolling interests of $24.0, (v) other debt repayments of $15.7, (vi) payments of $2.3 related to debt financing costs associated with the Company’s $350.0 aggregate principal amount of unsecured 4.750% Senior Notes due March 30, 2026 (the “2026 Senior Notes”), and (vii) payment of $1.5 associated with the deferred purchase price related to an acquisition, partially offset by (a) cash proceeds of $394.5 from the exercise of stock options and (b) net cash proceeds from borrowings of $354.9, primarily related to the issuance of the 2026 Senior Notes. In 2022, net cash used in financing activities was primarily driven by (i) repurchases of the Company’s Common Stock of $730.5, (ii) dividend payments of $477.4, (iii) net repayments of $159.3, primarily under the U.S. Commercial Paper Program, (iv) other debt repayments of $55.2, primarily related to short-term debt, and (v) distributions to and purchases of noncontrolling interests of $9.9, partially offset by (a) cash proceeds of $185.3 from the exercise of stock options and (b) proceeds of $50.7 primarily related to short-term borrowings.The Company has significant flexibility to meet its financial commitments. The Company uses debt financing to lower the overall cost of capital and increase return on stockholders’ equity. The Company’s debt financing includes the use of the Commercial Paper Programs, the Revolving Credit Facility, and senior notes as part of its overall cash management strategy.On March 21, 2024, the Company entered into a third amended and restated credit agreement, which amended and restated its $2,500.0 unsecured revolving credit facility, increasing the lenders’ aggregate unsecured revolving commitments under the facility by $500.0 to $3,000.0 (the “Revolving Credit Facility”). The Revolving Credit Facility matures in March 2029 and gives the Company and certain of its subsidiaries the ability to borrow, in various currencies, at a spread that varies, based on the Company’s debt rating, over certain currency-specific benchmark rates, which benchmark rates, in the case of U.S. dollar borrowings, are either the base rate or the adjusted term Secured Overnight Financing Rate (“SOFR”). The Revolving Credit Facility was undrawn on the date it was amended and restated. The Company may utilize the Revolving Credit Facility for general corporate purposes. As of December 31, 2024 and 2023, there were no outstanding borrowings under the revolving credit facility then in effect. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. On December 31, 2024, the Company was in compliance with the financial covenants under the Revolving Credit Facility.On April 19, 2022, the Company entered into a two-year, $750.0 unsecured delayed draw term loan credit agreement (the “Term Loan”). The Term Loan matured on April 19, 2024 without the Company drawing upon it throughout its term.The Company has a commercial paper program (the “U.S. Commercial Paper Program”) pursuant to which the Company may issue short-term unsecured commercial paper notes (the “USCP Notes” or “U.S. Commercial Paper”) in one or more private placements in the United States. On March 21, 2024, in conjunction with the increase in the capacity of the Revolving Credit Facility, the Company increased the borrowings available under its U.S. Commercial Paper Program by $500.0. As of December 31, 2024, the maximum aggregate principal amount outstanding of USCP Notes at any time is $3,000.0. The Company utilizes borrowings under the U.S. Commercial Paper Program for general corporate purposes, which, in recent years, have included fully or partially funding acquisitions, as well as repaying certain outstanding senior notes. The Company borrowed under the U.S. Commercial Paper Program throughout much of 2024 and 2023, the proceeds of which were used for general corporate purposes, including, but not limited to, partially funding the acquisition of CIT in May 2024. Before the end of the fourth quarter of 2024 and 2023, the Company repaid all of its USCP Notes then outstanding. As of December 31, 2024 and 2023, there were no USCP Notes outstanding.The Company and one of its wholly owned European subsidiaries (the “Euro Issuer”) also have a commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the
40Table of Contents“Commercial Paper Programs”), pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, the “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States. The ECP Notes may be issued in Euros, Sterling, U.S. dollars or other currencies. The maximum aggregate principal amount outstanding of ECP Notes at any time is $2,000.0. The Company utilizes borrowings under the Euro Commercial Paper Program for general corporate purposes, which may include, for example, fully or partially funding acquisitions, as was the case in the first quarter of 2023 when the Company used borrowings under its Euro Commercial Paper Program, along with cash on hand, to fund an acquisition. The Company did not borrow under the Euro Commercial Paper Program during 2024. As of December 31, 2024 and 2023, 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, as of December 31, 2024, the authorization from the Board limits the maximum aggregate principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper or similar programs, along with outstanding amounts under the Revolving Credit Facility, at any time to $3,000.0 . The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and, based on the Board’s authorization described above, are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Revolving Credit Facility are available to repay Commercial Paper, if necessary. The Company reviews its optimal mix of short-term and long-term debt regularly and may replace certain amounts of Commercial Paper, short-term debt and current maturities of long-term debt with new issuances of long-term debt in the future.As of December 31, 2024, the Company has outstanding senior notes (the “Senior Notes”) as follows:
Principal
Interest
Amount
Rate
Maturity
$400.0
2.050
%
March 2025
350.0
4.750
%
March 2026
700.0
5.050
%
April 2027
450.0
5.050
%
April 2029
500.0
4.350
%
June 2029
900.02.800%
February 2030
750.0
2.200
%
September 2031
600.05.250
%
April 2034750.05.000
%
January 2035500.05.375
%
November 2054
€
500.0
0.750
%
May 2026 (Euro Notes)
500.0
2.00
%
October 2028 (Euro Notes)
On April 1, 2024, the Company used cash on hand to repay the $350.0 aggregate principal amount of unsecured 3.20% Senior Notes due April 1, 2024 upon maturity.On April 5, 2024, the Company issued three series of unsecured senior notes (collectively, the “April Senior Notes”): (i) $450.0 aggregate principal amount of unsecured 5.050% Senior Notes due April 5, 2027 (the “Original 2027 Senior Notes”), (ii) $450.0 aggregate principal amount of unsecured 5.050% Senior Notes due April 5, 2029 (the “2029 Senior Notes”) and (iii) $600.0 aggregate principal amount of unsecured 5.250% Senior Notes due April 5, 2034 (the “2034 Senior Notes”). The Company used net proceeds from the April Senior Notes, together with a combination of cash on hand and borrowings under the U.S. Commercial Paper Program, to fund the cash consideration for the CIT acquisition in May 2024, along with the fees and expenses related thereto.On October 31, 2024, the Company issued three series of unsecured senior notes (collectively, the “October Senior Notes”): (i) $250.0 aggregate principal amount of unsecured 5.050% Senior Notes due April 5, 2027 (the “Additional 2027 Senior Notes”), which constituted a further issuance of the Company’s Original 2027 Senior Notes issued in April 2024, thus forming a single series with, and having the same terms (other than the issue date, issue price and the first interest payment date) as, the Original 2027 Senior Notes, and thus having a total aggregate principal amount of $700.0 of unsecured 5.050% Senior Notes due April 5, 2027 outstanding (the Original 2027 Senior Notes, together with the Additional 2027 Senior Notes collectively referred to as the “2027 Senior Notes”), (ii) $750.0 aggregate principal amount of unsecured 5.000% Senior Notes due January 15, 2035 (the “2035 Senior Notes”) and (iii) $500.0 aggregate principal amount of unsecured 5.375% Senior Notes due November 15, 2054 (the “2054 Senior Notes”). On January 31,
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2025, the Company used the net proceeds from the October Senior Notes, together with borrowings under the U.S. Commercial Paper Program and cash on hand, to fund the cash consideration for the Company’s acquisition of CommScope’s Mobile Networks Business, along with the fees and expenses related thereto.On March 30, 2023, the Company issued the 2026 Senior Notes. The Company used the net proceeds from the 2026 Senior Notes to repay certain outstanding borrowings under 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 all of the Company’s other senior unsecured and unsubordinated indebtedness, including the Company’s guarantee of the Euro Issuer’s obligations under the Euro Notes. Interest on each series of U.S. Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series of U.S. Senior Notes at any time, subject to certain terms and conditions.The Euro Issuer has two outstanding unsecured senior notes issued in Europe. The Euro Issuer has €500.0 (approximately $545.4 at date of issuance) aggregate principal amount of unsecured 0.750% Senior Notes due May 4, 2026 (the “2026 Euro Notes”), the net proceeds of which were used to repay amounts outstanding under the then existing revolving credit facility. In addition, the Euro Issuer also has €500.0 (approximately $574.6 at date of issuance) aggregate principal amount of unsecured 2.000% Senior Notes due October 8, 2028 (the “2028 Euro Notes”, together with the 2026 Euro Notes, the “Euro Notes”, and the Euro Notes, together with the U.S. Senior Notes, the “Senior Notes”), the net proceeds of which were used to repay a portion of the outstanding amounts under our Commercial Paper Programs, with the remainder of the net proceeds being used for general corporate purposes. The Euro Notes are unsecured and rank equally in right of payment with all of the Euro Issuer’s senior unsecured and unsubordinated indebtedness and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on each series of Euro Notes is payable annually. The Company may, at its option, redeem some or all of either series of Euro Notes at any time, subject to certain terms and conditions.The Senior Notes impose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial requirements. On December 31, 2024, the Company was in compliance with all requirements under its Senior Notes. Refer to Note 4 of the Notes to Consolidated Financial Statements for further information related to the Company’s debt.On April 23, 2024, the Board authorized a new stock repurchase program under which the Company may purchase up to $2,000.0 of its Common Stock during the three-year period ending on the close of business on April 28, 2027 (the “2024 Stock Repurchase Program”). The 2024 Stock Repurchase Program became effective on April 29, 2024. During the year ended December 31, 2024, the Company repurchased 7.0 million shares of its Common Stock for $463.7 under the 2024 Stock Repurchase Program. Of the total repurchases made in 2024 under the 2024 Stock Repurchase Program, 4.2 million shares, or $287.5, have been retired by the Company, with the remainder of the repurchased shares retained in Treasury stock at the time of repurchase. From January 1, 2025 to January 31, 2025, the Company repurchased 0.7 million additional shares of its Common Stock for $50.7, and, as of February 1, 2025, the Company has remaining authorization to purchase up to $1,485.6 of its Common Stock under the 2024 Stock Repurchase Program. The timing and amount of any future repurchases will depend on a number of factors, such as the levels of cash generation from operations, the volume of stock options exercised by employees, cash requirements for acquisitions, dividends paid, economic and market conditions and the price of the Common Stock.In April 2021, the Board authorized a stock repurchase program under which the Company could purchase up to $2,000.0 of its Common Stock during the three-year period ending April 27, 2024 (the “2021 Stock Repurchase Program”). During the year ended December 31, 2024, the Company repurchased 4.1 million shares of its Common Stock for $225.6 under the 2021 Stock Repurchase Program. All of the repurchased shares under the 2021 Stock Repurchase Program during 2024 have been retired by the Company. As a result of these repurchases, the Company completed all repurchases authorized under the 2021 Stock Repurchase Program, and, therefore, the 2021 Stock Repurchase Program has terminated. During the year ended December 31, 2023, the Company repurchased 14.4 million shares of its Common Stock for $585.1 under the 2021 Stock Repurchase Program. Of the total repurchases made in 2023, 10.9 million shares, or $435.8, were retired by the Company, with the remainder of the repurchased shares retained in Treasury stock at the time of repurchase. During the year ended December 31, 2022, the Company repurchased 19.8 million shares of its Common Stock for $730.5 under the 2021 Stock Repurchase Program. Of the total repurchases made in 2022, 18.7 million shares, or $689.7, were retired by the Company, with the remainder of the repurchased shares retained in Treasury stock at the time of repurchase.42
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Contingent upon declaration by the Board, the Company pays a quarterly dividend on shares of its Common Stock. On October 24, 2023, the Board approved an increase to the Company’s quarterly dividend rate from $0.105 per share to $0.11 per share, effective with dividends declared in the fourth quarter of 2023, and on July 23, 2024, the Board approved an additional increase to the Company’s quarterly dividend rate from $0.11 per share to $0.165 per share, effective with dividends declared in the third quarter of 2024, contingent upon declaration by the Board. The following table summ arizes the declared quarterly dividends per share during each of the three years ended December 31, 2024, 2023 and 2022:
2024
2023
2022First Quarter
$0.11
$0.105
$0.10Second Quarter
0.11
0.105
0.10Third Quarter
0.165
0.105
0.10Fourth Quarter
0.165
0.11
0.105Total
$0.55
$0.425
$0.405The following table summarizes the dividends declared and paid during the years ended December 31, 2024, 2023 and 2022:
2024
2023
2022Dividends declared
$662.9
$507.4
$482.6Dividends paid (including those declared in the prior year)
595.1
500.6
477.4
Pensions
The Company and certain of its subsidiaries in the United States have defined benefit pension plans (“U.S. Pension Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Pension Plans’ benefits are generally based on years of service and compensation and are generally noncontributory. The majority of U.S. employees are not covered by the U.S. Pension Plans and are instead covered by various defined contribution plans. The Company also has an unfunded Supplemental Employee Retirement Plan (“SERP”, and together with the U.S. Pension Plans, “U.S. Plans”), which provides for the payment of the portion of annual pension that cannot be paid from the retirement plan as a result of regulatory limitations on average compensation for purposes of the benefit computation. Certain foreign subsidiaries also have defined benefit plans covering their employees (the “Foreign Plans” and, together with the U.S. Plans, the “Plans”). The total liability for accrued pension and postretirement benefit obligations associated with the Company’s pension and postretirement benefit plans decreased in 2024 to $89.2 from $106.0 in 2023, primarily driven by the effect of higher discount rates in 2024 on our projected benefit obligations along with actual positive returns on plan assets in 2024, partially offset by interest cost. There is no current requirement for cash contributions to any of the U.S. Plans, and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the Plans’ assets, the timing and amount of cash contributions in the future, if any.
Refer to Note 9 of the Notes to Consolidated Financial Statements for further discussion of the Company’s benefit plans and other postretirement benefit plans.Acquisitions
During 2024, the Company completed two acquisitions (the “2024 Acquisitions”), including the acquisition of CIT, for approximately $2,156.4, net of cash acquired. Both acquisitions have been included in the Harsh Environment Solutions segment. The 2024 Acquisitions were each funded using cash on hand, proceeds from the April Senior Notes or borrowings under the U.S. Commercial Paper Program, or a combination thereof. The 2024 Acquisitions are not material, either individually or in the aggregate, to the Company’s financial results.On May 21, 2024, pursuant to a definitive stock purchase agreement by and between the Company and Carlisle Companies Incorporated dated January 30, 2024, the Company completed the acquisition of CIT for approximately $1,995.3, net of cash acquired and subject to customary post-closing adjustments. The Company funded the CIT acquisition through a combination of net proceeds from the April Senior Notes, as discussed earlier in this Item 7, together with borrowings under the U.S. Commercial Paper Program and cash on hand. CIT, headquartered in St. Augustine, FL, is a leading global supplier of harsh environment interconnect solutions, primarily to the commercial aerospace, defense and industrial end markets. CIT’s wide range of products include wire and cable, cable assemblies,
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contacts, connectors and sensors, which management believes are highly complementary to Amphenol’s existing interconnect and sensor solutions.During 2023, the Company completed 10 acquisitions (the “2023 Acquisitions”) for approximately $970.4, net of cash acquired. Five of the acquisitions were included in the Harsh Environment Solutions segment, three acquisitions were included in the Interconnect and Sensor Systems segment, and two acquisitions were included in the Communications Solutions segment. The 2023 Acquisitions were each funded using cash on hand or borrowings under our Commercial Paper Programs, or a combination thereof. One of the 2023 Acquisitions, which closed in the second quarter of 2023, represented a bargain purchase, where the estimated fair value of assets acquired, net of liabilities assumed, exceeded the purchase price. The Company recognized a non-cash gain of $5.4 on the bargain purchase acquisition during the year ended December 31, 2023, which was recorded separately in the Company’s Consolidated Statements of Income. The 2023 Acquisitions were not material, either individually or in the aggregate, to the Company’s financial results.
Acquisition-related Expenses
In 2024, the Company incurred $145.6 ($119.3 after-tax) of acquisition-related expenses, comprised primarily of (i) external transaction costs associated with acquisitions and the amortization related to the value associated with acquired backlog resulting from the CIT acquisition (such acquisition-related expenses aggregating $127.4 are presented separately in the Consolidated Statements of Income) and (ii) the amortization of acquisition-related inventory step-up costs of $18.2 associated with the CIT acquisition (such costs are recorded in Cost of sales in the Consolidated Statements of Income).In 2023, the Company incurred $34.6 ($30.2 after-tax) of acquisition-related expenses, comprised primarily of external transaction costs associated with the 2023 Acquisitions, along with the amortization related to the value associated with acquired backlog resulting from three of the 2023 Acquisitions. Such acquisition-related expenses are presented separately in the accompanying Consolidated Statements of Income.Acquisitions of CommScope’s Mobile Networks Business and LifeSync CorporationOn January 31, 2025, pursuant to a purchase agreement (the “CommScope Purchase Agreement”) with CommScope Holding Company, Inc. (“CommScope”) dated July 18, 2024, the Company completed the acquisition of CommScope’s mobile networks-related businesses, specifically the Outdoor Wireless Networks segment and the Distributed Antenna Systems business (collectively, the “Mobile Networks Business”) for an aggregate purchase price of approximately $2,100 in cash, subject to customary post-closing adjustments. The Company funded the acquisition of the Mobile Networks Business through a combination of net proceeds from the October Senior Notes, as discussed in Note 4 of the accompanying Notes to Consolidated Financial Statements, together with borrowings under the U.S. Commercial Paper Program and cash on hand. The Mobile Networks Business provides mobile networks solutions, with advanced technologies in the areas of base station antennas and related interconnect solutions, as well as distributed antenna systems. The Mobile Networks Business’s wide range of products add advanced antenna and associated interconnect products, technologies and capabilities, which management believes are highly complementary to Amphenol’s existing product portfolio for next-generation wireless networks. The Mobile Networks Business will be included in the Communications Solutions segment. Also, on January 31, 2025, the Company completed the acquisition of LifeSync Corporation (“LifeSync”), a high-technology provider of interconnect products for medical applications, which will be included in the Harsh Environment Solutions segment.For further discussion of the Company’s acquisitions, refer to Note 11 and Note 15 of the Notes to Consolidated Financial Statements.
Environmental Matters
Certain operations of the Company are subject to environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.44Table of Contents
Inflation and Costs
The cost of the Company’s products is influenced by the cost of a wide variety of raw materials. The Company strives to offset the impact of increases in the cost of raw materials, labor and services through price increases, productivity improvements and cost saving programs. However, in certain markets, implementing price increases can be difficult, and there is no guarantee that the Company will be successful. From time to time, the Company has encountered, and in the future may encounter, difficulties in obtaining certain raw materials or components necessary for production at reasonable costs due to supply chain constraints and logistical challenges, which may include regulatory restrictions and the imposition of additional tariffs. These difficulties may also negatively impact the pricing of materials and components sourced or used by the Company. While the Company does not currently anticipate significant, broad-based difficulties in obtaining raw materials or components necessary for production, inflationary pressures and increased commodity prices may impact the cost and availability of certain raw materials and components used by the Company and result in supply shortages for discrete raw materials or components. For a discussion of certain risks related to inflation and costs, refer to the risk factor titled “ The Company and certain of its suppliers and customers have experienced, and may in the future experience, difficulties obtaining certain raw materials and components, and the cost of certain of the Company’s raw materials and components may increase ” in Part I, Item 1A. Risk Factors herein.
Foreign Currency Exchange Rates
The Company conducts business in many foreign currencies through its worldwide operations, and as a result, is subject to foreign exchange exposure due to changes in exchange rates of the various currencies, including possible currency devaluations. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. The Company attempts to mitigate currency risk in a number of ways, such as locating factories in the same country or region in which products are sold, hedging contracts, cost reduction and pricing actions or working capital management. However, there can be no assurance that any or all such actions taken by the Company will be fully effective in successfully 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. For further discussion of foreign exchange exposures, risks and uncertainties, refer to the risk factor titled “ The Company’s results can be positively or negatively affected by changes in foreign currency exchange rates ” in Part I, Item 1A. Risk Factors herein.
Non-GAAP Financial Measures
In addition to assessing the Company’s financial condition, results of operations, liquidity and cash flows in accordance with U.S. GAAP, management utilizes certain non-GAAP financial measures, defined below, as part of its internal reviews for purposes of monitoring, evaluating and forecasting the Company’s financial performance, communicating operating results to the Board and assessing related employee compensation measures. Management believes that these non-GAAP financial measures may be helpful to investors in assessing the Company’s overall financial performance, trends and year-over-year comparative results, in addition to the reasons noted below. Non-GAAP financial measures related to operating income, operating margin, net income attributable to Amphenol Corporation, effective tax rate and diluted EPS exclude income and expenses that are not directly related to the Company’s operating performance during the years presented. Items excluded in the presentation of such non-GAAP financial measures in any period may consist of, without limitation, acquisition-related expenses, refinancing-related costs, gains associated with bargain purchase acquisitions, and certain discrete tax items including, but not limited to, (i) the excess tax benefits related to stock-based compensation and (ii) the impact of significant changes in tax law. Non-GAAP financial measures related to net sales exclude the impact of foreign currency exchange rates and acquisitions. The non-GAAP financial information contained herein is included for supplemental purposes only and should not be considered in isolation or as a substitute for or superior to the related U.S. GAAP financial measures. In addition, these non-GAAP financial measures are not necessarily the same or comparable to similar measures presented by other companies as such measures may be calculated differently or may exclude different items.
45Table of ContentsThe non-GAAP financial measures defined below should be read in conjunction with the Company’s financial statements presented in accordance with U.S. GAAP. The reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2024, 2023 and 2022 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 7:● Adjusted Diluted EPS is defined as diluted earnings per share (as reported in accordance with U.S. GAAP), excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented. Adjusted Diluted EPS is calculated as Adjusted Net Income attributable to Amphenol Corporation, as defined below, divided by the weighted average outstanding diluted shares as reported in the Consolidated Statements of Income.● Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Consolidated Statements of Income, expressed as a percentage of Income before income taxes, as reported in the Consolidated Statements of Income, each excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.● Adjusted Net Income attributable to Amphenol Corporation is defined as Net income attributable to Amphenol Corporation, as reported in the Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.
● Adjusted Operating Income is defined as Operating income, as reported in the Consolidated Statements of Income, excluding income and expenses that are not directly related to the Company’s operating performance during the years presented.
● Adjusted Operating Margin is defined as Adjusted Operating Income (as defined above) expressed as a percentage of Net sales (as reported in the Consolidated Statements of Income).
● Constant Currency Net Sales Growth is defined as the year-over-year percentage change in net sales growth, excluding the impact of changes in foreign currency exchange rates. The Company’s results are subject to volatility related to foreign currency translation fluctuations. As such, management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Organic Net Sales Growth (as defined below) and Constant Currency Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.
● Free Cash Flow is defined as (i) Net cash provided by operating activities (“Operating Cash Flow” - as reported in accordance with U.S. GAAP) less (ii) capital expenditures (as reported in accordance with U.S. GAAP), net of proceeds from disposals of property, plant and equipment (as reported in accordance with U.S. GAAP), all of which are derived from the Consolidated Statements of Cash Flow. Free Cash Flow is an important liquidity measure for the Company, as we believe it is useful for management and investors to assess our ability to generate cash, as well as to assess how much cash can be used to reinvest in the growth of the Company or to return to stockholders through either stock repurchases or dividends.● Organic Net Sales Growth is defined as the year-over-year percentage change in net sales growth resulting from operating volume and pricing changes and excludes the impact of (i) changes in foreign currency exchange rates (described above), which is outside the control of the Company, and (ii) acquisitions, both of which are taken as a percentage of the respective prior year period(s) net sales. The acquisition impact represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year(s) and/or prior comparable year(s) presented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. Management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Constant Currency Net Sales Growth (as defined above) and Organic Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.
Recent Accounting Pronouncements
Refer to Note 1 of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements, including those adopted by the Company.
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Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience along with other assumptions that we believe are reasonable in formulating our bases for making judgements regarding the carrying amounts of assets and liabilities that are not readily apparent elsewhere. Estimates are adjusted as new information becomes available. Actual results could differ from those estimates. The Company believes that the following accounting policies and estimates are most critical since they require significant assumptions and judgments that inherently are subject to risks and uncertainties. The significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements.
Revenue Recognition
The Company’s primary source of revenues consist of product sales to either end customers and their appointed contract manufacturers (including original equipment manufacturers) or to distributors. Our revenues are derived from contracts with customers, which in most cases are customer purchase orders that may be governed by master sales agreements. For each contract, the promise to transfer the control of the products, each of which is individually distinct, is considered to be the identified performance obligation. As part of the consideration promised in each contract, the Company evaluates the customer’s credit risk. Our contracts do not have any significant financing components, as payment terms are generally due net 30 to 120 days after delivery. Although products are almost always sold at fixed prices, in determining the transaction price, we evaluate whether the price is subject to refund (due to returns) or adjustment (due to volume discounts, rebates, or price concessions) to determine the net consideration we expect to be entitled to. We allocate the transaction price to each distinct product based on its relative standalone selling price. Taxes assessed by governmental authorities and collected from the customer, including but not limited to sales and use taxes and value-added taxes, are not included in the transaction price.
The vast majority of our sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer, which generally occurs when we ship or deliver the product from our manufacturing facility to our customers, when our customer accepts and has legal title of the goods, and where the Company has a present right to payment for such goods. Based on the respective contract terms, most of our contracts’ revenues are recognized either (i) upon shipment based on free on board (“FOB”) shipping point or (ii) when the product arrives at its destination. For the years ended December 31, 2024, 2023 and 2022, less than 5% of our net sales were recognized over time, where the associated contracts relate to the sale of goods with no alternative use as they are only sold to a single customer and whose underlying contract terms provide the Company with an enforceable right to payment, including a reasonable profit margin, for performance completed to date, in the event of customer termination. For the contracts recognized over time, we typically record revenue using the input method, based on the materials and labor costs incurred to date relative to the contract’s total estimated costs. This method reasonably depicts when and as control of the goods transfers to the customer, since it measures our progress in producing the goods which is generally commensurate with this transfer of control. Since we typically invoice our customers at the same time that we satisfy our performance obligations, contract assets and contract liabilities related to our contracts with customers recorded in the Consolidated Balance Sheets were not material as of December 31, 2024 and 2023.
Standard product warranty coverage, which provides assurance that our products will conform to the contractually agreed-upon specifications for a limited period from the date of shipment, is typically offered, while extended or separately priced warranty coverage is typically not offered. The warranty claim is generally limited to a credit equal to the purchase price or a promise to repair or replace the product for a specified period of time at no additional charge. We estimate our warranty liability based on historical experience, product history, and current trends.
Income Taxes
Deferred income taxes are provided for revenue and expenses which are recognized in different periods for income tax and financial statement reporting purposes. The Company recognizes the effects of changes in tax laws and rates on deferred income taxes in the period in which legislation is enacted. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. As of December 31, 2024, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,550 related to certain geographies, as it is the
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Company’s intention to permanently reinvest such earnings outside the United States. It is impracticable to calculate the amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated. In addition, the Company remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its investments in foreign subsidiaries. It is not practicable to determine the deferred tax liability with respect to such basis differences. Deferred tax assets are regularly assessed for recoverability based on both historical and anticipated earnings levels and a valuation allowance is recorded when it is more likely than not that these amounts will not be recovered.
The tax effects of an uncertain tax position taken or expected to be taken in income tax returns are recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes.
As a result of the Tax Act, the global intangible low-taxed income (“GILTI”) provision imposed a tax on certain earnings o f foreign subsidiaries. The Company elected an accounting policy to account for GILTI as a period cost. The U.S. Treasury Department has issued final interpretive guidance relating to certain provisions of the Tax Act and proposed additional guidance related to the same provisions. The Company will account for the impact of additional guidance in the period in which any new guidance is released, if appropriate.