AMPHENOL CORPORATION (amounts in millions, except share and per share data,
unless otherwise noted)
The following discussion and analysis of the results of operations and financial
condition for the three months ended March 31, 2022 and 2021 has been derived
from and should be read in conjunction with our unaudited Condensed Consolidated
Financial Statements and the accompanying notes thereto included in Part I, Item
1 herein for Amphenol Corporation (together with its subsidiaries, "Amphenol ,"
the "Company," "we," "our" or "us"). The following discussion and analysis
should also be read in conjunction with the consolidated financial statements
and notes included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2021 (the "2021 Annual Report"). The Condensed
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 2 for more information,
including our reasons for including non-GAAP financial measures and material
limitations with respect to the usefulness of the measures.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events and are subject to risks and uncertainties. All statements that address events or developments that we expect or believe may or will occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The forward-looking statements, which address the Company's expected business and financial performance and financial condition, among other matters, may contain words and terms such as: "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "guidance," "intend," "look ahead," "may," "ongoing," "optimistic," "plan," "potential," "predict," "project," "seek," "should," "target," "will" or "would" and other words and terms of similar meaning. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about expected earnings, revenues, growth, liquidity, effective tax rate or other matters, together with any forward-looking statements related in any way to the COVID-19 pandemic, including its future impact on the Company. Although the Company believes the expectations reflected in all forward-looking statements, including those we may make with regards to expected earnings, revenues, growth, liquidity, the Company's effective tax rate, and other matters discussed herein, are based upon reasonable assumptions, the expectations may not be attained or there may be material deviation. Readers and investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. There are risks and uncertainties that could cause actual results to differ materially from these forward-looking statements, which include, but are not limited to, the following: political, economic, military and other risks related to operating in countries outsidethe United States , as well as changes in general economic conditions, geopolitical conditions,U.S. trade policies (including but not limited to sanctions) and other factors beyond the Company's control; future risks and existing uncertainties associated with adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic, which continues to disrupt our operations including government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers; uncertainties associated with a protracted economic slowdown that could negatively affect the financial condition of our customers; risks associated with our inability to obtain certain raw materials and components in the current challenging supply chain environment, as well as the risk that the cost of most of the Company's raw materials and components is increasing; negative impacts caused by extreme weather conditions and natural catastrophic events, including those caused by climate change and global warming; risks associated with the improper conduct by any of our employees, customers, suppliers, distributors or any other business partners which could impair our business reputation and financial results and could result in our non-compliance with 24
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anti-corruption laws and regulations of theU.S. government and various foreign jurisdictions; changes in exchange rates of the various currencies in which the Company conducts business; risks associated with the Company's dependence on attracting, recruiting, hiring and retaining skilled employees, including as part of our various management teams; the Company's dependence on sales to the communications industry, which markets are dominated by large manufacturers and operators who regularly exert significant pressure on suppliers, including the Company; changes in defense expenditures in the military market, including the impact of reductions or changes in the defense budgets ofU.S. and foreign governments; risks and difficulties in trying to compete successfully on the basis of technology innovation, product quality and performance, price, customer service and delivery time; difficulties and unanticipated expenses in connection with purchasing and integrating newly acquired businesses, including the potential for the impairment of goodwill and other intangible assets; events beyond the Company's control that could lead to an inability to meet its financial and other covenants, which could result in a default under the Company's revolving credit facility or unsecured term loan credit facility; risks associated with the Company's inability to access the global capital markets on favorable terms, including as a result of significant deterioration of general economic or capital market conditions, or as a result of a downgrade in the Company's credit rating; changes in interest rates; cybersecurity threats, including but not limited to malware, phishing, credential harvesting, ransomware and other increasingly sophisticated attacks, that could impair our information technology systems and could disrupt business operations, 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 information, any of which could adversely impact our reputation and operating results and potentially lead to litigation and/or governmental investigations and fines; government contracting risks that the Company may be subject to, including laws and regulations governing performance of government contracts and related risks associated with conducting business with theU.S. and other foreign governments or their suppliers (both directly and indirectly); governmental export and import controls that certain of our products may be subject to, including export licensing, customs regulations, economic sanctions and other laws; changes in fiscal and tax policies, audits and examinations by taxing authorities, laws, regulations and guidance inthe United States and foreign jurisdictions; any difficulties in protecting the Company's intellectual property rights; litigation, customer claims, product recalls, governmental investigations, criminal liability or environmental matters including changes to laws and regulations to which the Company may be subject; and incremental costs and other risks that may arise in connection with regulatory efforts to combat the negative effects of climate change. A further description of these uncertainties and other risks can be found in the 2021 Annual Report, Quarterly Reports on Form 10-Q and the Company's other reports filed with theSecurities and Exchange Commission . These or other uncertainties may cause the Company's actual future results to be materially different from those expressed in any forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements except as required by law.
Impact of COVID-19 on our Operations, Financial Condition, Liquidity and Results of Operations
The COVID-19 pandemic has affected our offices and manufacturing facilities throughout the world, as well as the facilities of our suppliers, customers and our customers' contract manufacturers. The COVID-19 pandemic caused widespread disruptions to our Company during the first half of 2020, and to a lesser extent, those disruptions continued throughout the remainder of 2020, all of 2021 and into 2022. As ofMarch 31, 2022 , we continue to experience some disruptions, and at a minimum, we expect disruptions to continue for the remainder of 2022 and potentially beyond. These disruptions have included and may continue to include government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers. More recently, during the first quarter of 2022, COVID-19 outbreaks inChina have resulted in new government-imposed lockdowns in certain regions, which have impacted the ability of several of our operations and manufacturing facilities to operate in the ordinary course. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the impact of any additional resurgences from known or new variants, current and future government regulations and actions in response to the crisis, the timing, availability, effectiveness and adoption rates of vaccines and treatments, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. In addition, the COVID-19 pandemic could impact the health of our management team and other employees. There can be no assurance that the COVID-19 pandemic will not have a 25 Table of Contents
material and adverse effect on our business, operations, financial condition, liquidity and results of operations in the future.
New Reportable Business Segments
Effective
?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, military, 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 military 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, military and commercial aerospace end markets. This new alignment reinforces the Company's entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability ofAmphenol's business for the future. The Company has begun reporting under its new reportable segments in connection with this Quarterly Report on Form 10-Q, which also includes the recasting of relevant prior year period segment information in order to enable year-over-year segment comparisons. Refer to Note 13 of the Notes to Condensed Consolidated Financial Statements, as well as the 2021 Annual Report, for further details related to the Company's change in its reportable business segments effective January
1, 2022. Results of Operations
Three months ended
Net sales were$2,951.9 in the first quarter of 2022 compared to$2,377.1 in the first quarter of 2021, which represented an increase of 24% inU.S. dollars, 25% in constant currencies and 17% organically, over the respective prior year period. The increase in net sales was driven by robust growth across all three reportable business segments, as described below. From a market standpoint, the increase in net sales was driven by strong organic growth across several markets, including the information technology and data communications, industrial, automotive, broadband communications, and commercial aerospace markets, as well as moderate growth in the mobile networks and mobile devices markets, along with contributions from the Company's acquisition program. Net sales in the Harsh Environment Solutions segment (approximately 25% of net sales) in the first quarter of 2022 increased 16% inU.S. dollars, 17% in constant currencies and 16% organically, compared to the first quarter of 2021. The increase in the first quarter of 2022 was driven primarily by strong organic growth in the industrial, automotive and commercial aerospace markets. Net sales in the Communications Solutions segment (approximately 45% of net sales) in the first quarter of 2022 increased 28% inU.S. dollars, 29% in constant currencies and 21% organically, compared to the first quarter of 2021. The increase in the first quarter of 2022 was driven by strong organic growth across several markets, including the information technology and data communications, automotive, industrial, mobile networks and broadband communications markets, as well as moderate growth in the mobile devices market, along with contributions from the Company's acquisition program. 26
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Net sales in the Interconnect and Sensor Systems segment (approximately 30% of net sales) in the first quarter of 2022 increased 25% inU.S. dollars, 28% in constant currencies and 13% organically, compared to the first quarter of 2021. The increase in the first quarter of 2022 was driven primarily by strong organic growth in the industrial, automotive, and information technology and data communications markets, along with contributions from the Company's acquisition program. The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparableU.S. GAAP financial measures, by segment, geography and consolidated, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 : Percentage Growth (relative to same prior year period) (1) Net sales Foreign Constant Organic growth in currency Currency Net Acquisition Net SalesU.S. Dollars (2) impact (3) Sales Growth (4) impact (5) Growth (4) Three Months Ended March 31, 2022 2021 (GAAP) (non-GAAP) (non-GAAP) (non-GAAP) (non-GAAP) Net sales by: Segment: Harsh Environment Solutions$ 727.6 $ 628.0 16 % (1) % 17 % 1 % 16 % Communications Solutions 1,320.1 1,028.0 28 % - % 29 % 8 % 21 %
Interconnect and Sensor Systems 904.2 721.1
25 % (2) % 28 % 15 % 13 % Consolidated$ 2,951.9 $ 2,377.1 24 % (1) % 25 % 8 % 17 % Geography (6): United States$ 913.9 $ 673.9 36 % - % 36 % 15 % 21 % Foreign 2,038.0 1,703.2 20 % (2) % 21 % 5 % 16 % Consolidated$ 2,951.9 $ 2,377.1 24 % (1) % 25 % 8 % 17 %
(1) Percentages in this table were calculated using actual, unrounded results;
therefore, the sum of the components may not add due to rounding.
Net sales growth in
in the Condensed Consolidated Statements of Income and Note 13 of the Notes
to Condensed Consolidated Financial Statements. While the term "net sales
(2) growth in
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.
Foreign currency translation impact, a non-GAAP measure, represents thepercentage impact on net sales resulting from foreign currency exchange rate
changes in the current reporting period(s) compared to the same respective (3) period(s) in the prior year. Such amount is calculated by subtracting net
sales for the current reporting period(s) translated at average foreign
currency exchange rates for the respective prior year period(s) from net
sales for the current reporting period(s), taken as a percentage of the
respective prior year period(s) net sales.
Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP (4) financial measures as defined in the "Non-GAAP Financial Measures" section of
this Item 2.
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 period(s) and/or prior (5) comparable period(s) 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 comparatively strongerU.S. dollar for the first quarter of 2022 had the effect of decreasing sales by approximately$27.8 , relative to the comparable period in 2021. Selling, general and administrative expenses increased to$336.8 , or 11.4% of net sales, for the first quarter of 2022, compared to$262.7 , or 11.1% of net sales, for the first quarter of 2021. The increase in selling, general and administrative expenses as a percentage of net sales in the first quarter of 2022 is primarily driven by the impact of several of the 2021 acquisitions, and in particular Halo and the MTS Sensors business, having higher selling, general and administrative expenses as a percentage of net sales compared to the average of the Company, partially offset by higher sales during the first three months of 2022, relative to the comparable period of 2021. Administrative expenses represented approximately 4.5% of net sales for the first quarter of 2022, and represented approximately 4.3% of net sales for the first quarter of 2021. Research and development expenses represented approximately 2.8% of net sales for the first quarter of 2022, and represented approximately 3.1% of net sales for the first quarter of 2021. Selling and marketing expenses represented approximately 4.1% of net sales for the first quarter of 2022, and represented approximately 3.7% of net sales for the first quarter of 2021. Operating income was$589.8 , or 20.0% of net sales, for the first quarter of 2022, compared to$464.8 , or 19.6% of net sales, for the first quarter of 2021. The increase in Operating income and operating margin for the first quarter
of
27
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2022 relative to the comparable period in 2021 was primarily driven by normal
operating leverage on the higher sales volumes combined with the benefit of
ongoing pricing and cost actions, which was partially offset by the continued
impact of the more challenging commodity, logistics and supply chain
environment.
Operating income for the Harsh Environment Solutions segment for the first
quarter of 2022 was $183.2 , or 25.2% of net sales, compared to $158.3 , or 25.2%
of net sales, for the first quarter of 2021. The operating margin for the Harsh
Environment Solutions segment for the first quarter of 2022 was flat relative to
the comparable period in 2021, as the normal operating leverage on the higher
sales volumes was offset by the continued impact of the more challenging
commodity, logistics and supply chain environment.
Operating income for the Communications Solutions segment for the first quarter
of 2022 was $282.5 , or 21.4% of net sales, compared to $204.5 , or 19.9% of net
sales, for the first quarter of 2021. The increase in operating margin for the
Communications Solutions segment for the first quarter of 2022 relative to the
comparable period in 2021 was primarily driven by normal operating leverage on
the higher sales volumes.
Operating income for the Interconnect and Sensor Systems segment for the first
quarter of 2022 was $160.0 , or 17.7% of net sales, compared to $135.1 , or 18.7%
of net sales, for the first quarter of 2021. The decrease in operating margin
for the Interconnect and Sensor Systems segment for the first quarter of 2022
relative to the comparable period in 2021 was primarily driven by the impact of
the Company's 2021 acquisitions, in particular the MTS Sensors business, which
currently operates at a lower operating margin compared to the average of the
Interconnect and Sensor Systems segment, which was partially offset by normal
operating leverage on the higher sales volumes.
Interest expense for the first quarter of 2022 was
Provision for income taxes for the first quarter of 2022 was at an effective tax rate of 23.8%, compared to 23.9% for the first quarter of 2021. For the first quarter of 2022 and 2021, the excess tax benefits resulting from stock option exercise activity had the impact 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 2, for the three months endedMarch 31, 2022 and 2021 was 24.5% for both periods, as reconciled in the table below to the comparable effective tax rate based on GAAP results. Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further information related to income taxes. Net income attributable toAmphenol Corporation and Net income per common share attributable toAmphenol Corporation - Diluted ("Diluted EPS") were$425.7 and$0.68 , respectively, for the first quarter of 2022, compared to$329.6 and$0.53 , respectively, for the first quarter of 2021. Excluding the effect of the aforementioned items discussed above, Adjusted Net Income attributable toAmphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the "Non-GAAP Financial Measures" section below within this Item 2, were$421.9 and$0.67 , respectively, for the first quarter of 2022, compared to$327.0 and$0.52 , respectively, for the first quarter of 2021. 28
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The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income attributable toAmphenol Corporation , Adjusted Effective Tax Rate and Adjusted Diluted EPS, as defined in the "Non-GAAP Financial Measures" section below) to the most directly comparableU.S. GAAP financial measures for the three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Net Income Net Income attributable Effective attributable Effective Operating Operating to Amphenol Tax Diluted Operating Operating to Amphenol Tax Diluted Income Margin (1) Corporation Rate (1) EPS Income Margin (1) Corporation Rate (1) EPS Reported (GAAP)$ 589.8 20.0 %$ 425.7 23.8 %$ 0.68 $ 464.8 19.6 %$ 329.6 23.9 %$ 0.53 Excess tax benefits related to stock-based compensation - - (3.8) 0.7 (0.01) - - (2.6) 0.6 - Adjusted (non-GAAP) (2)$ 589.8 20.0 %$ 421.9 24.5 %$ 0.67 $ 464.8 19.6 %$ 327.0 24.5 %$ 0.52
While the terms "operating margin" and "effective tax rate" are not
(1) considered
derive the reported (GAAP) measures based on GAAP results, which serve as the
basis for the reconciliation to their comparable non-GAAP financial measures.
All percentages and per share amounts in this table were calculated using (2) actual, unrounded results; therefore, the sum of the components may not add
due to rounding.
Liquidity and Capital Resources
As of
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, theU.S. Commercial Paper Program, the Euro Commercial Paper Program, and the Revolving Credit Facility (each as defined and discussed further below within this Item 2). OnApril 19, 2022 , the Company entered into a two-year,$750.0 unsecured delayed draw loan credit agreement ("2022 Term Loan"), any future proceeds of which are expected to be used for general corporate purposes. The Company believes that its cash, cash equivalents and short-term investment position on hand, ability to generate future cash from operating activities, availability under each of its Revolving Credit Facility and recent 2022 Term Loan, and access to capital markets, provide adequate liquidity to meet both its short-term (next twelve months) and reasonably foreseeable long-term requirements and 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 included in Item 7 of the 2021 Annual Report. The Company may also use cash to fund all or part of the cost of future acquisitions. The Company's debt service requirements consist primarily of principal and interest on the Company's Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility and the Commercial Paper Programs (all as defined below) as well as the recent 2022 Term Loan. Following the enactment of theU.S. Tax Cuts and Jobs Act of 2017 (the "Tax Act") inDecember 2017 , the Company indicated an intention to repatriate most of its pre-2022 accumulated earnings and has accrued the foreign andU.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-2022 foreign earnings. As ofMarch 31, 2022 , the Company has accrued the foreign andU.S. state and local taxes associated with the foreign earnings that we intend to repatriate. The Company intends to evaluate future earnings for repatriation, and will accrue for those distributions where appropriate, and to indefinitely reinvest all other foreign earnings. In addition, the Transition Tax will be paid, net of applicable tax credits and deductions, in annual installments until 2025, as permitted under the Tax Act. 29 Table of Contents Cash Flow Summary
The following table summarizes the Company's cash flows from operating,
investing and financing activities for the three months ended
Three
Months Ended
2022 2021
Net cash provided by operating activities $ 350.8 $ 321.0
Net cash used in investing activities (144.1) (263.2)
Net cash (used in) provided by financing activities (151.2) 586.2
Effect of exchange rate changes on cash and cash equivalents (5.1) (18.4)
Net increase in cash and cash equivalents $
50.4 $ 625.6
Operating Activities
The ability to generate cash from operating activities is one of the Company's
fundamental financial strengths. Net cash provided by operating activities
("Operating Cash Flow") was $350.8 in the first three months of 2022 compared to
$321.0 in the first three months of 2021. The increase in Operating Cash Flow
for the first three months of 2022 compared to the first three months of 2021 is
primarily due to the increase in net income, partially offset by a higher usage
of cash related to the change in working capital.
In the first three months of 2022, the components of working capital as
presented on the accompanying Condensed Consolidated Statements of Cash Flow
increased $182.9 , excluding the impact of acquisitions and foreign currency
translation, primarily due to increases in inventories of $113.8 and prepaid
expenses and other current assets of $30.4 , along with decreases in accounts
payable of $36.3 and accrued liabilities, including income taxes, of $29.9 ,
partially offset by a decrease in accounts receivable of $27.5 . In the first
three months of 2021, the components of working capital as presented on the
accompanying Condensed Consolidated Statements of Cash Flow increased $114.6 ,
excluding the impact of acquisitions and foreign currency translation, due to an
increase in inventories of $85.7 and decreases in accounts payable of $52.6 and
accrued liabilities, including income taxes, of $16.4 , partially offset by
decreases in accounts receivable of $32.1 and prepaid expenses and other current
assets of $8.0 .
The following describes the significant changes in the amounts as presented on
the accompanying Condensed Consolidated Balance Sheets at March 31, 2022 as
compared to December 31, 2021 . Accounts receivable decreased $32.7 to $2,422.1 ,
primarily due to slightly lower sales in the first quarter of 2022 relative to
the fourth quarter of 2021, along with the effect of translation from exchange
rate changes ("Translation") at March 31, 2022 compared to December 31, 2021 .
Days sales outstanding at March 31, 2022 and December 31, 2021 were 74 days and
71 days, respectively. Inventories increased $95.6 to $1,989.7 , which was
primarily driven by the impact of the ongoing supply chain disruptions that we
continued to experience during the first three months of 2022, partially offset
by Translation. Inventory days at March 31, 2022 and December 31, 2021 were 88
days and 80 days, respectively. Prepaid expenses and other current assets
increased $29.4 to $397.3 , primarily due to increases in various prepaid
expenses. Property, plant and equipment, net, decreased $0.3 to $1,175.0 , as
depreciation of $71.7 and Translation were offset by capital expenditures of
$78.1 . Goodwill decreased $27.7 to $6,349.1 , primarily as a result of
Translation. Other intangible assets, net decreased $18.5 to $738.4 , primarily
due to amortization associated with the Company's intangible assets. Other
long-term assets increased $91.2 to $502.4 , primarily due to the purchase of
long-term certificates of deposit investments, along with an increase in
operating lease right-of-use assets resulting from new and renewed lease
agreements entered into during the first three months of 2022. Accounts payable
decreased $36.1 to $1,275.9 , primarily due to decreased purchasing activity
related to lower sales levels in the first quarter of 2022 relative to the
fourth quarter of 2021. Payable days at March 31, 2022 and December 31, 2021
were 57 days and 56 days, respectively. Total accrued expenses, including
accrued income taxes, decreased $33.5 to $1,097.6 , primarily as a result of a
decrease in accrued salaries, wages and employee benefits, which was partially
offset by increases in accrued income taxes and other accrued expenses.
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There is no current requirement for cash contributions to any of the Company's defined benefit pension plans in theU.S. , and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the pension plans' assets, the timing and amount of cash contributions in the future, if any, as discussed in more detail in Note 10 of the Notes to Condensed Consolidated Financial Statements. In addition to Operating Cash Flow, the Company also considers Free Cash Flow, a non-GAAP financial measure defined in the "Non-GAAP Financial Measures" section below, as a key metric in measuring the Company's ability to generate cash. The following table reconciles Free Cash Flow to its most directly comparableU.S. GAAP financial measure for the three months endedMarch 31, 2022 and 2021. The increase in Free Cash Flow was driven by an increase in Operating Cash Flow, as described above. Three Months Ended March 31, 2022 2021 Operating Cash Flow (GAAP)$ 350.8 $ 321.0 Capital expenditures (GAAP) (78.1) (78.4) Proceeds from disposals of property, plant and equipment (GAAP) 1.8 0.9 Free Cash Flow (non-GAAP)$ 274.5 $ 243.5 Investing Activities
Cash flows from investing activities consist primarily of cash flows associated with capital expenditures, proceeds from disposals of property, plant and equipment, net purchases (sales and maturities) of short- and long-term investments, and acquisitions.
Net cash used in investing activities was$144.1 in the first quarter of 2022, compared to$263.2 in the first quarter of 2021. In the first quarter of 2022, net cash used in investing activities was driven primarily by capital expenditures (net of disposals) of$76.3 , purchases of long-term investments of$55.9 , and net purchases of short-term investments of$8.6 . In the first quarter of 2021, net cash used in investing activities was driven primarily by the use of$185.6 to fund acquisitions and capital expenditures (net of disposals) of$77.5 , partially offset by net sales and maturities of short-term investments of$2.3 . Financing Activities
Cash flows from financing activities consist primarily of cash flows associated with borrowings and repayments of the Company's credit facilities and other long-term debt, repurchases of Common Stock, proceeds from stock option exercises, dividend payments, and distributions to and purchases of noncontrolling interests.
Net cash used in financing activities was$151.2 in the first quarter of 2022, compared to net cash provided by financing activities of$586.2 in the first quarter of 2021. For the first quarter of 2022, net cash used in financing activities was driven primarily by (i) repurchases of the Company's Common Stock of$204.0 , (ii) dividend payments of$119.8 , (iii) distributions to and purchases of noncontrolling interests of$3.6 , and (iv) repayments of$2.5 related to other long-term debt, partially offset by (a) net borrowings of$138.4 primarily under theU.S. Commercial Paper Program, (b) proceeds of$20.3 primarily related to short-term borrowings, and (c) cash proceeds of$20.0 from the exercise of stock options. For the first quarter of 2021, net cash provided by financing activities was driven primarily by (i) net borrowings of$813.1 comprised primarily of borrowings under theU.S. Commercial Paper Program in anticipation of the closing of the MTS acquisition and (ii) cash proceeds of$21.1 from the exercise of stock options, partially offset by (a) repurchases of the Company's Common Stock of$152.8 , (b) dividend payments of$86.8 , (c) distributions to and purchases of noncontrolling interests of$7.6 , and (d) repayments of$0.8 related to other long-term debt. 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 2022 Term Loan, and senior notes as part of its overall cash management strategy. 31
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OnNovember 30, 2021 , the Company amended and restated its$2,500.0 unsecured revolving credit facility (the "Revolving Credit Facility"). As a result, the Revolving Credit Facility no longer references LIBOR for interest rate determinations. The Revolving Credit Facility maintains the lenders' aggregate commitments under the facility at$2,500.0 . The Revolving Credit Facility matures inNovember 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 ofU.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 ofMarch 31, 2022 andDecember 31, 2021 , 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. OnMarch 31, 2022 , the Company was in compliance with the financial covenants under the Revolving Credit Facility. OnApril 19, 2022 , the Company entered into a two-year,$750.0 unsecured delayed draw term loan credit agreement (the "2022 Term Loan"), which is scheduled to mature onApril 19, 2024 . The 2022 Term Loan was undrawn at closing and may be drawn on up to five occasions over the life of the facility. The 2022 Term Loan may be repaid at any time without premium or penalty, and, once prepaid, cannot be reborrowed. The proceeds from the 2022 Term Loan are expected to be used for general corporate purposes. Interest rates under the 2022 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. The 2022 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. As ofApril 26, 2022 , there were no outstanding borrowings under the 2022 Term Loan. Pursuant to the terms of theU.S. commercial paper program, the Company may issue short-term unsecured commercial paper notes (the "USCP Notes") in one or more private placements inthe 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 theU.S. Commercial Paper Program for general corporate purposes, which recently has included fully or partially funding acquisitions, as well as to repay certain outstanding senior notes. The amount of USCP Notes outstanding as ofMarch 31, 2022 was$933.5 , with a weighted average interest rate of 0.95%. As ofDecember 31, 2021 , the amount of USCP Notes outstanding was$795.2 , with a weighted average interest rate of 0.29%. 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 theU.S. Commercial Paper Program, the "Commercial Paper Programs"), pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the "ECP Notes" and, together with the USCP Notes, "Commercial Paper"), which are guaranteed by the Company and are to be issued outside ofthe 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 . As ofMarch 31, 2022 andDecember 31, 2021 , there were no ECP Notes outstanding. Amounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time. In conjunction with the Revolving Credit Facility, 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$2,500.0 in the aggregate. The Commercial Paper Programs are rated A-2 byStandard & Poor's and P-2 by Moody's and, based on the Board's authorization described above, are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company's Revolving Credit Facility are available to repay Commercial Paper, if necessary. Net proceeds of the issuances of Commercial Paper are expected to be used for general corporate purposes. The Company reviews its optimal mix of short-term and long-term debt regularly and may replace certain amounts of Commercial Paper, short-term debt and current maturities of long-term debt with new issuances of long-term debt in the future. 32
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As ofMarch 31, 2022 , the Company has outstanding senior notes (the "Senior Notes") as follows: Principal Interest Amount Rate Maturity$ 350.0 3.20 % April 2024 400.0 2.050 % March 2025 500.0 4.350 % June 2029 900.0 2.80 % 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
All of the Company's outstanding senior notes inthe 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 ofU.S. Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series ofU.S. Senior Notes at any time, subject to certain terms and conditions. The Euro Issuer has two outstanding senior notes inEurope (collectively, the "Euro Notes" and, together with theU.S. Senior Notes, the "Senior Notes"), each of which were issued with a principal amount of €500.0, with one series of the Euro Notes maturing inMay 2026 and the other inOctober 2028 . 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 Company's Senior Notes impose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial requirements. OnMarch 31, 2022 , the Company was in compliance with all requirements under its Senior Notes. Refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for further information related to the Company's debt. OnApril 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 endingApril 27, 2024 (the "2021 Stock Repurchase Program") in accordance with the requirements of Rule 10b-18 of the Exchange Act. During the three months endedMarch 31, 2022 , the Company repurchased 2.6 million shares of its Common Stock for$204.0 under the 2021 Stock Repurchase Program. Of the total repurchases made during the first three months of 2022, 0.3 million shares, or$21.0 , were retained inTreasury stock at the time of repurchase. The remaining 2.3 million shares, or$183.0 , have been retired by the Company. FromApril 1, 2022 toApril 26, 2022 , the Company repurchased 0.7 million additional shares of its Common Stock for$51.0 under the 2021 Stock Repurchase Program, and, as ofApril 27, 2022 , the Company has remaining authorization to purchase up to$1,287.1 of its Common Stock under the 2021 Stock Repurchase Program. The price and timing of any future purchases under the 2021 Stock Repurchase Program will depend on a number of factors, such as levels of cash generation from operations, the volume of stock options exercised by employees, cash requirements for acquisitions, dividends paid, economic and market conditions and the price of the Company's Common Stock. OnApril 24, 2018 , the Board authorized a stock repurchase program under which the Company could purchase up to$2,000.0 of the Company's Common Stock during the three-year period endingApril 24, 2021 (the "2018 Stock Repurchase Program") in accordance with the requirements of Rule 10b-18 of the Exchange Act. During the three months endedMarch 31, 2021 , the Company repurchased 2.4 million shares of its Common Stock for$152.8 under the 2018 Stock Repurchase Program. Of the total repurchases made during the first three months of 2021, 0.3 million shares, or$19.8 , were retained inTreasury stock at the time of repurchase. The remaining 2.1 million shares, or$133.0 , 33
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were retired by the Company. In April of 2021, the Company repurchased the remaining value of shares of its Common Stock authorized under the 2018 Stock Repurchase Program and, therefore, the 2018 Stock Repurchase Program was terminated.
Contingent upon declaration by the Board, the Company pays a quarterly dividend on shares of its Common Stock. The following table summarizes the declared quarterly dividends per share as well as the dividends declared and paid for the three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Dividends declared per share $ 0.20$ 0.145 Dividends declared $ 119.5$ 86.6
Dividends paid (including those declared in the prior year)
119.8 86.8
OnOctober 26, 2021 , the Board approved an increase to its quarterly dividend rate from$0.145 per share to$0.20 per share, effective with dividends declared in the fourth quarter of 2021, contingent upon declaration by the Board.
LIBOR Transition
InJuly 2017 , theUnited Kingdom's Financial Conduct Authority (the "FCA"), which regulates the London Interbank Offered Rate ("LIBOR"), announced its intent to phase out the use of LIBOR by the end of 2021. InDecember 2020 , theICE Benchmark Administration published a consultation on its intention to extend the publication of certainU.S. dollar LIBOR ("USD LIBOR") rates untilJune 30, 2023 . Subsequently inMarch 2021 , theFCA announced some USD LIBOR tenors (overnight, 1-month, 3-month, 6-month and 12-month) will continue to be published untilJune 30, 2023 . TheU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of largeU.S. financial institutions, identified the SOFR as its preferred benchmark alternative to USD LIBOR. The SOFR represents a measure of the cost of borrowing cash overnight, collateralized byU.S. Treasury securities, and is calculated based on directly observableU.S. Treasury -backed repurchase transactions. InMarch 2020 , in response to this transition, theFinancial Accounting Standards Board ("FASB") issued accounting guidance providing certain optional expedients and exceptions for applyingU.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. InJanuary 2021 , the FASB issued further clarifying guidance surrounding derivatives, as it relates to this transition. EffectiveNovember 30, 2021 , the Revolving Credit Facility no longer references LIBOR for interest rate determinations. Due to our current limited reliance on borrowings tied to LIBOR, the Company currently believes that the LIBOR transition will not have a material impact on its financial condition, results of operations or cash flows.
Acquisitions and Divestitures
During 2021, the Company completed seven acquisitions for$2,225.4 , net of cash acquired, while also completing the divestiture of the Divested MTS business, as defined and discussed below. One of the acquisitions was included in the Harsh Environment Solutions segment, three acquisitions were included in the Communications Solutions segment and three acquisitions were included in the Interconnect and Sensor Systems segment. The 2021 acquisitions were not material, either individually or in the aggregate, to the Company.
Acquisition of MTS
OnApril 7, 2021 , pursuant to a definitive agreement datedDecember 9, 2020 , by and among the Company andMTS Systems Corporation ("MTS"), the Company completed the acquisition of MTS for a total enterprise value of approximately$1,700 , net of cash acquired and including the repayment of all outstanding debt and certain liabilities. The MTS acquisition was funded through a combination of borrowings under theU.S. Commercial Paper Program and cash on hand. At closing, the Company paid approximately$1,300 , net of cash acquired, for 100% of the common stock of MTS, including certain liabilities settled at closing, which was reflected within Net cash used in investing activities 34
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from continuing operations in the Consolidated Statements of Cash Flow for the year endedDecember 31, 2021 . In addition, the Company also assumed MTS's then-outstanding$350.0 principal amount of senior notes dueAugust 15, 2027 , which were repaid and settled, shortly after the closing, for approximately$387.3 , which included accrued interest and a make-whole premium incurred as a result of the early extinguishment of the senior notes. MTS was historically organized into two business segments: Sensors ("MTS Sensors") and Test & Simulation ("MTS T&S"). The retained MTS Sensors business is reported within our Interconnect and Sensor Systems segment. In the second quarter of 2021, the Company incurred$55.4 ($44.6 after-tax, or$0.07 per diluted share) of acquisition-related expenses, comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the MTS acquisition.
Sale of the Divested MTS Business
OnJanuary 19, 2021 and prior to the closing of the MTS acquisition, the Company entered into a definitive agreement to sell MTS (including the MTS T&S business, but excluding the MTS Sensors business) to Illinois Tool Works Inc. ("ITW"). Throughout this Quarterly Report on Form 10-Q, we refer to MTS (including the MTS T&S business, but excluding the MTS Sensors business) as the "Divested MTS business". As a result of the agreement to sell the Divested MTS business to ITW, the Divested MTS business met the "held for sale" criteria at its acquisition date, and the Company accounted for the operating results and related cash flows associated with the Divested MTS business as discontinued operations in the Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Cash Flow, respectively, as of the MTS acquisition date ofApril 7, 2021 throughDecember 1, 2021 , the date of the sale of the Divested MTS business. Accordingly, the Company did not assign the Divested MTS business to any of its reportable business segments. Income from discontinued operations attributable toAmphenol Corporation , net of income taxes, was$21.4 for the year endedDecember 31, 2021 . OnDecember 1, 2021 , the Company completed the sale of the Divested MTS business for approximately$750 , net of cash divested and excluding related transaction fees and expenses. The proceeds from the sale of the Divested MTS business were included in Net cash provided by investing activities from discontinued operations in the Consolidated Statements of Cash Flow for the year endedDecember 31, 2021 .Amphenol has no continuing involvement with the Divested MTS business now that its sale has been consummated. After giving effect to the sale of the Divested MTS business as well as the repayment of the aforementioned MTS senior notes as part of the MTS acquisition, the Company paid approximately$950 , net of cash acquired and excluding related transaction fees and expenses, for the retained MTS Sensors business.
Acquisition of
OnDecember 1, 2021 , the Company completed the acquisition of approximately 97% of the common stock ofHalo Technology Limited ("Halo") for a purchase price of approximately$694 , net of cash acquired. The sellers retained a less than 3% noncontrolling interest in Halo, which includes redeemable features that are outside the control of the Company and therefore, has been classified as temporary equity on the Condensed Consolidated Balance Sheets as ofMarch 31, 2022 andDecember 31, 2021 , as discussed in more detail in Note 5 in the accompanying Condensed Consolidated Financial Statements, as well as Note 1 of the Notes to Consolidated Financial Statements in the 2021 Annual Report. The acquisition was funded with cash on hand. The operating results for Halo have been included in the Company's Condensed Consolidated Statements of Income since the acquisition date. Halo is reported within our Communications Solutions segment. In the fourth quarter of 2021, the Company incurred$15.0 ($12.7 after-tax, or$0.02 per diluted share) of acquisition-related expenses, comprised primarily of external transaction costs and certain non-cash purchase accounting costs related to the Halo acquisition.
Refer to Note 11 of the Notes to Condensed Consolidated Financial Statements, as well as the 2021 Annual Report, for further discussion of the Company's acquisitions, as well as its discontinued operations and the completed divestiture of the Divested MTS business in 2021.
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,
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results of operations or cash flows. For more information on certain environmental matters, refer to Note 15 of the Notes to Condensed Consolidated Financial Statements.
Non-GAAP Financial Measures In addition to assessing the Company's financial condition, results of operations, liquidity and cash flows in accordance withU.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 period-over-period comparative results, in addition to the reasons noted below. Non-GAAP financial measures related to operating income, operating margin, net income attributable toAmphenol Corporation , effective tax rate and diluted EPS exclude income and expenses that are not directly related to the Company's operating performance during the periods presented. Items excluded in the presentation of such non-GAAP financial measures in any period may consist of, without limitation, acquisition-related expenses, refinancing-related costs, and certain discrete tax items including but not limited to (i) the excess tax benefits related to stock-based compensation and (ii) the impact of significant changes in tax law. Non-GAAP financial measures related to net sales exclude the impact 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, as a substitute for or superior to the relatedU.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 withU.S. GAAP. The reconciliations of these non-GAAP financial measures to the most directly comparableU.S. GAAP financial measures for the three months endedMarch 31, 2022 and 2021 are included in "Results of Operations" and "Liquidity and Capital Resources" within this Item 2:
Adjusted Diluted EPS is defined as diluted earnings per share (as reported in
accordance with
tax effects that are not directly related to the Company's operating
? performance during the periods presented. Adjusted Diluted EPS is calculated as
Adjusted Net Income attributable to
divided by the weighted average outstanding diluted shares as reported in the
Condensed Consolidated Statements of Income. Adjusted Effective Tax Rate is defined as Provision for income taxes, as
reported in the Condensed Consolidated Statements of Income, expressed as a
? percentage of Income before income taxes, as reported in the Condensed
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 periods presented.
Adjusted Net Income attributable to
income attributable to
? 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 periods presented.
Adjusted Operating Income is defined as Operating income, as reported in the
? Condensed Consolidated Statements of Income, excluding income and expenses that
are not directly related to the Company's operating performance during the
periods presented.
Adjusted Operating Margin is defined as Adjusted Operating Income (as defined
? above) expressed as a percentage of Net sales (as reported in the Condensed
Consolidated Statements of Income). Constant Currency Net Sales Growth is defined as the period-over-period
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 inU.S. dollars, as well as Organic Net Sales Growth (defined 36 Table of Contents 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
capital expenditures (as reported in accordance with
proceeds from disposals of property, plant and equipment (as reported in
? accordance with
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 period-over-period 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
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 period(s) and/or prior
comparable 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
above) and Organic Net Sales Growth, and believes that such information is
useful to investors to assess the underlying sales trends.
Critical Accounting Policies and Estimates
The Company's disclosures of its critical accounting policies and estimates, which are discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of its 2021 Annual Report, have not materially changed since that report was filed.
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