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

The following discussion and analysis of the results of operations for the three years ended December 31, 2015, 2014 and 2013 has been derived from and should be read in conjunction with the Consolidated Financial Statements included in Part II, Item 8 herein and is presented in millions, except per share data. The Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Overview

The Company is a global designer, manufacturer and marketer of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensor and sensor-based products and coaxial and high-speed specialty cable. The Company operates through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. In 2015, approximately 70% of the Company’s sales were outside the U.S. 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 and hybrid-electric automotive applications; and

· commercial aerospace and military applications.

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

The Company’s strategy is to provide its customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis while maintaining continuing programs of productivity improvement and cost control. The Company focuses its research and development efforts through close collaboration with its OEM 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 diversification;

· Develop performance-enhancing interconnect solutions;

· Expand global presence;

· Control costs;

· Pursue strategic acquisitions and investments; and

· Foster collaborative, entrepreneurial management.

In 2015, the Company reported net sales, operating income and net income attributable to Amphenol Corporation of $5,568.7, $1,104.7 and $763.5, respectively, up 4%, 7% and 8%, respectively, from 2014. Sales and profitability trends are discussed in detail in “Results of Operations” below. In addition, a strength of the Company has been its ability to consistently generate cash. The Company uses cash generated from operations to fund capital expenditures and acquisitions, repurchase shares of its common stock, pay dividends and reduce indebtedness. In 2015, the Company generated operating cash flow of $1,030.5.

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 periods indicated.

		Year Ended December 31,
		2015		2014		2013
Net sales		100.0	%	100.0	%	100.0	%
Cost of sales		68.1		68.3		68.5
Acquisition-related expenses		0.1		0.2		0.2
Selling, general and administrative expenses		12.0		12.1		11.9
Operating income		19.8		19.4		19.4
Interest expense		(1.2	)	(1.5	)	(1.4	)
Other income, net		0.3		0.3		0.3
Income before income taxes		18.9		18.2		18.3
Provision for income taxes		(5.0	)	(4.8	)	(4.5	)
Net income		13.9		13.4		13.8
Net income attributable to noncontrolling interests		(0.2	)	(0.1	)	—
Net income attributable to Amphenol Corporation		13.7	%	13.3	%	13.8	%

2015 Compared to 2014

Net sales were $5,568.7 for the year ended December 31, 2015 compared to $5,345.5 for the year ended December 31, 2014, an increase of 4% in U.S. dollars, 8% in local currencies and 3% organically (excluding both currency and acquisition impacts) over the prior year. Sales in the Interconnect Products and Assemblies segment (approximately 94% of net sales) increased 5% in 2015 in U.S. dollars, 8% in local currencies and 3% organically compared to 2014 ($5,239.1 in 2015 versus $4,992.6 in 2014). The sales growth was driven by increases in the automotive, mobile devices, industrial and information technology and data communications equipment markets, with contributions from both organic growth and the Company’s acquisition program; partially offset by decreases in sales in the mobile networks, commercial aerospace and military markets. Sales to the automotive market increased (approximately $190.9), driven both by acquisitions and an expansion of our products across a diversified range of vehicles and onboard electronics. Sales to the mobile devices market increased (approximately $116.5) primarily due to growth in next generation laptops, mobile device accessories and production-related products. Sales to the industrial market increased (approximately $43.0) reflecting the benefit of acquisitions as well as growth in industrial battery and hybrid vehicle applications and growth in alternative energy applications, offset by significant declines in products sold into oil and gas exploration. Sales to the information technology and data communications market increased (approximately $17.6), primarily due to the growth in products for server, web and data center applications, partially offset by declines in storage-related applications. Sales to the mobile networks market decreased (approximately $101.7), primarily due to a decrease in worldwide mobile network build-outs. Sales to the commercial aerospace market decreased (approximately $21.5), primarily due to decreases in commercial helicopter and business jet demand. Sales to the military market decreased slightly (approximately $3.8). Sales in the Cable Products and Solutions segment (approximately 6% of net sales), which is primarily in the broadband communications market, decreased 7% in 2015 in U.S. dollars and 2% in both local currencies and organically compared to 2014 ($329.6 in 2015 versus $352.9 in 2014) primarily due to a slowdown in spending by cable operators and the effect of ongoing operator consolidations in the broadband market.

Geographically, sales in the U.S. in 2015 increased approximately 1% ($1,696.3 in 2015 versus $1,673.5 in 2014) compared to 2014. International sales for 2015 increased approximately 5% in U.S. dollars and approximately 10% in local currencies ($3,872.4 in 2015 versus $3,672.0 in 2014) compared to 2014 with strength in both Asia and Europe. The comparatively stronger U.S. dollar in 2015 had the effect of decreasing net sales by approximately $190.3 when compared to foreign currency translation rates in 2014.

The gross profit margin as a percentage of net sales was 31.9% in 2015 compared to 31.7% in 2014. The increase in gross profit margin as a percentage of sales relates primarily to higher gross profit margins in the Interconnect Products and Assemblies segment reflecting the benefit of higher volumes and cost reduction actions.

Selling, general and administrative expenses were $669.1 and $645.1 and represented approximately 12.0% and 12.1% of net sales for 2015 and 2014, respectively. Administrative expenses increased approximately $9.6 in 2015 primarily related to increases in the amortization of acquisition-related identified intangible assets and stock-based compensation expense and represented approximately 4.8% of net sales in both 2015 and 2014. Research and development expenses increased approximately $9.9 in 2015 reflecting an overall increase in expenses for new product development and represented approximately 2.2% of net sales in 2015 and

2.1% of net sales in 2014. Selling and marketing expenses increased approximately $4.5 in 2015 primarily related to the increase in sales volume and represented approximately 5.0% of net sales in 2015 and 5.1% of net sales in 2014.

Operating income was $1,104.7 or 19.8% of net sales in 2015, compared to $1,034.6 or 19.4% of net sales in 2014. Operating income for 2015 includes $5.7 of acquisition-related expenses (separately presented in the Consolidated Statements of Income) related to professional fees and other external expenses for acquisitions that were closed and announced in 2015. Operating income for 2014 is net of $14.1 of acquisition-related expenses, which included professional and transaction-related fees and other external expenses related to acquisitions closed in 2014, as well as the amortization of the value associated with acquired backlog related to acquisitions that closed in 2013 and 2014. For the years ended December 31, 2015 and 2014, these expenses had the impact on net income of $5.7, or $0.02 per share, and $10.2, or $0.04 per share, respectively. Excluding the effect of these expenses, operating income margin in 2015 and 2014 was 19.9% and 19.6%, respectively. Operating income for the Interconnect Products and Assemblies segment for 2015 was $1,158.3 or 22.1% of net sales, compared to $1,088.0 or 21.8% of net sales of 2014. This increase in operating income margin is driven primarily by the positive impact of higher gross profit margins as well as a reduction of selling, general and administrative expenses as a percentage of net sales, as described above. In addition, the operating income for the Cable Products and Solutions segment for 2015 was $40.3 or 12.2% of net sales, compared to $43.7 or 12.4% of net sales for 2014. The decrease in operating income margin for the Cable Products and Solutions segment for 2015 compared to 2014 was primarily as a result of lower volumes.

Interest expense was $68.3 for 2015 compared to $80.4 for 2014. The decrease is primarily attributable to the benefit of lower average borrowing rates resulting from the commercial paper program that was initiated in late 2014, and a senior note issuance in the third quarter of 2014 which replaced a higher rate note maturity. This benefit more than offset the impact of higher average debt levels which resulted from the Company’s stock repurchase program as well as acquisition activity.

Other income, net, decreased to $16.4 in 2015 compared to $18.3 in 2014, primarily related to lower interest income on cash, cash equivalents and short-term investments.

The provision for income taxes was at an effective rate of 26.6% in 2015 and 26.5% in 2014. Excluding the net impact of acquisition-related expenses, the Company’s effective tax rate for both 2015 and 2014 was 26.5%.

2014 Compared to 2013

Net sales were $5,345.5 for the year ended December 31, 2014 compared to $4,614.7 for the year ended December 31, 2013, an increase of 16% in both U.S. dollars and in local currencies and 8% organically (excluding both currency and acquisition impacts) over the prior year. Sales in the Interconnect Products and Assemblies segment (approximately 93% of net sales) increased 17% in 2014 in both U.S. dollars and in local currencies and 8% organically compared to 2013 ($4,992.6 in 2014 versus $4,269.0 in 2013). The sales growth was driven by increases in nearly all of our served markets with contributions from both organic growth and the Company’s acquisition program; partially offset by a small decrease in sales in the information technology and data communications equipment market. Sales to the industrial market increased (approximately $276.2) reflecting particular growth within the energy and heavy equipment markets driven by the impact of organic growth and acquisitions. Sales to the automotive market increased (approximately $271.2), driven primarily by ongoing ramp ups of new, high-technology programs as well as higher vehicle production volumes and acquisitions. Sales to the mobile networks market increased (approximately $112.4), primarily due to an increase in worldwide network build-outs. Sales to the commercial aerospace market increased (approximately $49.7) primarily due to increased demand resulting from higher production levels of next generation jetliners and acquisitions. Sales to the mobile devices market increased (approximately $46.6) primarily due to growth in smartphones and accessories. Sales to the military market increased slightly (approximately $3.5). This was partially offset by reductions in sales to the information technology and data communications equipment market (approximately $20.2) due to declining networking product sales partially offset by growth in storage and server products. Sales in the Cable Products and Solutions segment (approximately 7% of net sales) increased 2% in 2014 in U.S. dollars and 3% in both local currencies and organically compared to 2013 ($352.9 in 2014 versus $345.7 in 2013) primarily due to growth in international markets. Cable Products and Solutions sales are primarily in the broadband communications market.

Geographically, sales in the U.S. in 2014 increased approximately 17% ($1,673.5 in 2014 versus $1,430.6 in 2013) compared to 2013. International sales for 2014 increased approximately 15% in U.S. dollars and in local currencies ($3,672.0 in 2014 versus $3,184.1 in 2013) compared to 2013 with particular strength in Europe. The comparatively stronger U.S. dollar in 2014 had the effect of decreasing net sales by approximately $3.1 when compared to foreign currency translation rates in 2013.

The gross profit margin as a percentage of net sales was 31.7% in 2014 compared to 31.5% in 2013. The increase in gross profit margin as a percentage of sales relates primarily to higher gross profit margins in the Interconnect Products and Assemblies segment due to increased volume and cost reduction actions.

Selling, general and administrative expenses were $645.1 and $548.0 and represented approximately 12.1% and 11.9% of net sales for 2014 and 2013, respectively. The increase in Selling, general and administrative expenses as a percentage of sales in 2014 compared to 2013 is partially due to higher selling, general and administrative expenses on a percent of net sales basis arising from the inclusion in 2014 of an acquisition in the Interconnect Products and Assemblies segment completed late in 2013 that has higher selling, general and administrative expenses on a percent of net sales basis compared to the average of the Company. Administrative expenses increased approximately $46.7 in 2014 primarily related to increases in employee related benefits, stock-based compensation expense and amortization of acquisition-related identified intangible assets and represented approximately 4.8% and 4.6% of net sales in 2014 and 2013, respectively. Research and development expenses increased approximately $11.4 in 2014 reflecting increases in expenses for new product development and represented approximately 2.1% of net sales in 2014 and 2.2% of net sales in 2013. Selling and marketing expenses increased approximately $39.0 in 2014 primarily related to the increase in sales volume and represented approximately 5.1% of net sales for both 2014 and 2013.

On a consolidated basis, operating income margin was 19.4% for 2014 and 2013 and included the impact of acquisition-related expenses discussed below. Operating margin in the Interconnect Products and Assemblies segment was 21.8% for both 2014 and 2013 reflecting higher gross profit margin offset by higher selling, general and administrative expenses as described above. Operating margin in the Cable Products and Solutions segment decreased to 12.4% in 2014 from 13.4% in 2013, primarily as a result of market pricing and product mix.

As separately presented in the Consolidated Statements of Income, the Company incurred $14.1 and $6.0 of acquisition-related expenses in 2014 and 2013, respectively, in connection with acquisitions made during each of these respective years. These expenses include amortization of the value associated with acquired backlog, professional fees, transaction-related fees, and other external expenses incurred in connection with acquisitions. For the years ended December 31, 2014 and 2013, these expenses had the impact on net income of $10.2, or $0.04 per share, and $4.6, or $0.01 per share, respectively. Excluding the effect of these expenses, operating income margin in 2014 and 2013 was 19.6% for both years.

Interest expense was $80.4 for 2014 compared to $63.6 for 2013. The increase is primarily attributable to higher average debt levels related to the Company’s stock repurchase program as well as acquisition activity.

Other income, net, increased to $18.3 in 2014 compared to $13.4 in 2013, primarily related to interest income on higher levels of cash, cash equivalents and short-term investments.

The provision for income taxes was at an effective rate of 26.5% in 2014 and 24.6% in 2013. The 2013 tax rate reflects a decrease in tax expense of $11.3, or $0.03 per share, resulting from the delay, by the U.S. government, in the reinstatement of certain federal income tax provisions for the year 2012 relating primarily to research and development credits and certain U.S. taxes on foreign income that are part of the tax provisions within the American Taxpayer Relief Act. Such tax provisions were reinstated on January 2, 2013 with retroactive effect to 2012. The 2013 tax rate also reflects a reduction in tax expense of $3.6 for tax reserve adjustments relating to the completion of the audits of certain of the Company’s prior year tax returns. Excluding these impacts as well as the net impact of the acquisition-related expenses, the Company’s effective tax rate for 2014 and 2013 was 26.5% and 26.3%, respectively.

Liquidity and Capital Resources

Cash flow provided by operating activities was $1,030.5 for 2015 compared to $880.9 for 2014. The increase in cash flow provided by operating activities for 2015 compared to 2014 is primarily due to an increase in net income and an overall decrease in the net components of working capital, compared to the increase in net working capital in 2014. Cash flow provided by operating activities was $880.9 for 2014 compared to $769.1 for 2013. The increase in cash flow provided by operating activities for 2014 compared to 2013 is primarily due to an increase in net income and a lower increase in the net components of working capital.

The components of working capital as presented on the accompanying Consolidated Statements of Cash Flow decreased $46.9 in 2015 due primarily to decreases in other current assets of $47.7 and increases in accrued liabilities of $44.2, offset by increases in accounts receivable and inventory of $22.3 and $5.2, respectively, and decreases in accounts payable of $17.5. The components of working capital increased $18.9 in 2014 due primarily to increases in accounts receivable, inventory, and other current assets of $111.5, $51.6 and $10.0, respectively, offset by increases in accounts payable and accrued liabilities of $66.8 and $87.3, respectively. The components of working capital increased $26.3 in 2013 due primarily to increases in accounts receivable, inventory, and other current assets of $37.1, $8.0 and $18.4, respectively, offset by increases in accounts payable and accrued liabilities of $6.9 and $30.2, respectively.

The following represents the significant changes in the amounts as presented on the accompanying Consolidated Balance Sheets in 2015 compared to 2014. Accounts receivable decreased $19.1 to $1,104.6 primarily due to the effect of translation from exchange rate changes at December 31, 2015 compared to December 31, 2014 (“Translation”), partially offset by the impact of acquisitions.

Days sales outstanding at December 31, 2015 and 2014 were 71. Inventories decreased $13.8 to $851.8, primarily due to the impact of Translation, partially offset by the impact of acquisitions. Inventory days at December 31, 2015 and 2014 were 79. Land and depreciable assets, net, increased $18.8 to $609.5 as a result of capital expenditures of $172.1 and acquisitions, partially offset by depreciation of $131.8, disposals and Translation. Goodwill increased $76.2 to $2,692.9 primarily as a result of three acquisitions in the Interconnect Products and Assemblies segment completed during 2015 offset by Translation. Intangibles and other long-term assets decreased $20.3 primarily due to the amortization of intangible assets of $34.9 and Translation, partially offset by additional identifiable intangible assets of $20.0 resulting from acquisitions during 2015. Accounts payable decreased $30.6 to $587.8, primarily as a result of Translation, partially offset by the impact of acquisitions. Payable days at December 31, 2015 and 2014 were 54 and 57, respectively.

In 2015, cash flow provided by operating activities of $1,030.5, net sales and maturities of short-term investments of $335.9, net borrowings of $153.6 and proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $80.6 were used to fund purchases of treasury stock of $248.9, acquisition-related payments of $199.8, capital expenditures (net of disposals) of $163.4, dividend payments of $159.3, and payments to shareholders of noncontrolling interests of $6.1, which resulted in an increase in cash and cash equivalents of $823.1. Translation had the impact of decreasing cash and cash equivalents by $54.8 in 2015.

In 2014, cash flow provided by operating activities of $880.9, net borrowings of $528.9 and proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $130.1 were used to fund purchases of treasury stock of $539.4, acquisition related payments of $518.2, net capital expenditures of $203.5, dividend payments of $101.9, net purchases of short-term investments of $60.2 and payments to shareholders of noncontrolling interests of $3.6, which resulted in an increase in cash and cash equivalents of $113.1. Translation had the impact of decreasing cash and cash equivalents by $31.0 in 2014.

At December 31, 2015 and 2014, the Company had cash, cash equivalents and short-term investments of $1,760.4 and $1,329.6, respectively. The majority of these amounts are located outside of the U.S. The Company used approximately $1,179, net of cash acquired, of its cash, cash equivalents and short-term investments to fund the FCI acquisition on January 8, 2016, as described below. The Company does not currently intend to repatriate the remainder of these funds. However, any repatriation of funds would result in the need to accrue and pay income taxes.

The ability to generate cash from operating activities is one of the Company’s fundamental financial strengths. As a result, 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 has a history of borrowing funds domestically and has had the ability to borrow funds domestically at reasonable interest rates. The Company’s debt financing includes the use of a commercial paper program, revolving credit facilities and senior notes as part of its overall cash management strategy. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. At December 31, 2015, the Company was in compliance with the financial covenants under the Revolving Credit Facility. There were no borrowings under the Revolving Credit Facility as of December 31, 2015.

In September 2014, the Company entered into a commercial paper program (“Commercial Paper Program”) pursuant to which the Company issues short-term unsecured commercial paper notes in one or more private placements. Amounts available under the Commercial Paper Program are borrowed, repaid and re-borrowed from time to time. The Commercial Paper Program is rated A-2 by Standard & Poor’s and P-2 by Moody’s and is backstopped by the Revolving Credit Facility. The maximum aggregate principal amount of the commercial paper notes that may be outstanding under the Commercial Paper Program at any time is $1,500.0 and commercial paper notes outstanding as of December 31, 2015 was $823.9. Additionally, in 2014, the Company issued $1,500.0 principal amount, in aggregate, of unsecured senior notes, the proceeds of which were used to repay the $600.0 4.75% notes which matured during the year and borrowings under the Company’s revolving credit facilities. Fees and expenses related to the issuance of the commercial paper and senior notes in 2014 was $11.1 and are amortized to interest expense over the respective terms of the debt. 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, 2015, the Company has outstanding senior notes (the “Senior Notes”) as follows:

Principal Amount		Interest Rate		Maturity
$375.0		1.55%		September 2017
750.0		2.55		January 2019
375.0		3.125		September 2021
500.0		4.00		February 2022

The Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on each series of the Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series of Senior Notes at any time by paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, and if redeemed prior to the date of maturity, a make-whole premium.

Refer to Note 2 of the Notes to the Consolidated Financial Statements for further information related to the Company’s debt.

The Company’s primary sources of liquidity are internally generated cash flow, the Company’s Commercial Paper Program, credit facilities, and cash, cash equivalents and short-term investments. The Company expects that ongoing cash requirements will be funded from these sources; however, the Company’s sources of liquidity could be adversely affected by, among other things, a decrease in demand for the Company’s products or a deterioration in certain of the Company’s financial ratios. However, management believes that the Company’s cash, cash equivalents and short-term investment position, ability to generate strong cash flow from operations, and availability under its credit facilities will allow it to meet its obligations for the next twelve months.

The Company’s primary ongoing cash requirements will be for operating and capital expenditures, product development activities, repurchase of its common stock, funding of pension obligations, dividends and debt service. The Company may also use cash to fund all or part of the cost of acquisitions, as it did with the 2016 acquisition of FCI as discussed below. The Company expects that capital expenditures in 2016 will be approximately $180.0 to $200.0. Contingent upon declaration by the Board of Directors, the Company generally pays a quarterly dividend on shares of Common Stock. In July 2014, the Board of Directors approved an increase in the quarterly dividend rate from $0.10 to $0.125 per share effective with the third quarter 2014 dividend and in July 2015, approved a further increase in the quarterly dividend rate from $0.125 to $0.14 per share effective with the third quarter 2015 dividend. Total dividends declared during 2015, 2014 and 2013 were $163.7, $140.6 and $96.8, respectively. Total dividends paid in 2015, 2014 and 2013 were $159.3, $101.9 and $96.8, respectively, including those declared in the prior year and paid in the current year. The Company’s debt service requirements consist primarily of principal and interest on the senior notes, the Revolving Credit Facility, and the Commercial Paper Program.

In January 2013, the Board of Directors authorized a stock repurchase program under which the Company could repurchase up to 20 million shares of its common stock during the two year period ending January 31, 2015 (the “2013 Stock Repurchase Program”). During the year ended December 31, 2014, the Company repurchased 11.4 million shares of its common stock for $539.4. These treasury shares have been retired by the Company and common stock and retained earnings were reduced accordingly. At December 31, 2014, the Company had repurchased all shares authorized under the 2013 Stock Repurchase Program.

In January 2015, the Board of Directors authorized a stock repurchase program under which the Company could repurchase up to 10 million shares of common stock during the two year period ending January 20, 2017 (the “2015 Stock Repurchase Program”). During the year ended December 31, 2015, the Company repurchased 4.5 million shares of its common stock for $248.9. These treasury shares have been retired by the Company and common stock and retained earnings were reduced accordingly. At January 31, 2016, approximately 5.5 million additional shares of common stock may be repurchased under the 2015 Stock Repurchase Program. The price and timing of any future purchases under the 2015 Stock Repurchase Program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, economic and market conditions and stock price.

In 2015, the Company made aggregate cash contributions to its defined benefit pension plans of approximately $24.1, the majority of which was to its U.S. defined benefit pension plans. The timing and amount of cash contributions in subsequent years will depend on a number of factors, including the investment performance of the plan assets.

FCI Acquisition

On January 8, 2016, pursuant to a Purchase Agreement dated July 17, 2015 and as amended on December 31, 2015, by and among the Company and Bain Capital, the Company acquired all of the share capital of FCI for an aggregate purchase price of approximately $1,179, net of cash acquired (subject to closing adjustments), which was funded by cash, cash equivalents and short-term investments on hand that were held outside of the United States.

See Note 14 of the Notes to the Consolidated Financial Statements for further discussion of the FCI acquisition.

Environmental Matters

Certain operations of the Company are subject to environmental laws and regulations which govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations

are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material effect on the Company’s financial condition, results of operations or cash flows.

Inflation and Costs

The cost of the Company’s products is influenced by the cost of a wide variety of raw materials, including precious metals such as gold and silver used in plating; aluminum, copper, titanium, steel and metal alloy products used for contacts, connector shells and cable; certain rare earth metals used in sensors; and plastic materials used in molding connector bodies, inserts and cable. 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, particularly in the communications related markets, this can be difficult and there is no guarantee that the Company will be successful.

Foreign Exchange

The Company conducts business in many international 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, gross margins and equity. The Company attempts to minimize currency exposure risk in a number of ways including producing its products in the same country or region in which the products are sold, thereby generating revenues and incurring expenses in the same currency, cost reduction and pricing actions, and working capital management. However, there can be no assurance that these actions will be fully effective in managing currency risk, especially in the event of a significant and sudden decline in the value of any of the international currencies of the Company’s worldwide operations.

Recent Accounting Pronouncements

See Note 1 of the Notes to the Company’s Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

Pensions

The Company and certain of its domestic subsidiaries 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. Certain U.S. employees not covered by the U.S. Plans are covered by defined contribution plans. Certain foreign subsidiaries also have defined benefit plans covering their employees (the “International Plans”). The pension expense for the U.S. Plans and International Plans (the “Plans”) approximated $31.0, $22.4 and $30.1 in 2015, 2014 and 2013, respectively, and is calculated based upon a number of actuarial assumptions established on January 1 of the applicable year, including a weighted-average discount rate, mortality projections, rate of increase of future compensation levels, and an expected long-term rate of return on the respective Plans’ assets.

The discount rate used by the Company for valuing pension liabilities is based on a review of high quality corporate bond yields with maturities approximating the remaining life of the projected benefit obligations. The discount rate for the U.S. Plans on this basis was 4.11% at December 31, 2015 and 3.75% at December 31, 2014. The increase in the discount rate resulted in a decrease in the accrued benefit obligation for the U.S. Plans of approximately $19.0 at December 31, 2015. At December 31, 2015, the Company elected to further refine its approach for calculating its service and interest costs beginning in 2016 by applying a split discount rate approach under which specific spot rates along the selected yield curve are applied to the relevant projected cash flows as the Company believes this method more precisely measures its obligations. The mortality assumptions used by the Company reflect commonly used mortality tables and improvement scales for each plan and increased life expectancies for plan participants.

In developing the expected long-term rate of return assumption for the U.S. Plans, the Company evaluated input from its external actuaries and investment consultants as well as long-term inflation assumptions. Projected returns by such consultants are based on broad equity and bond indices. The Company also considered its historical twenty-year compounded return of approximately 9%, which has been in excess of these broad equity and bond benchmark indices. The expected long-term rate of return on the U.S. Plans’ assets is based on an asset allocation assumption of 60% with equity managers (with an expected long-term rate of return of approximately 9%) and 40% with fixed income managers (with an expected long-term rate of return of approximately 6%). The Company believes that the long-term asset allocation on average will approximate 60% with equity managers and 40% with fixed income managers. The Company regularly reviews the actual asset allocation and periodically rebalances investments to its targeted allocation when considered appropriate. Based on this methodology, the Company’s expected long-term rate of return assumption to determine the benefit obligation of the U.S. Plans at December 31, 2015 and 2014 is 8.00%.

The Company made cash contributions to the Plans of $24.1, $23.8 and $23.3 in 2015, 2014 and 2013, respectively. The total liability for accrued pension and post-employment benefit obligations under the Company’s pension and post-retirement benefit plans decreased in 2015 to $266.0 ($3.7 of which is included in other accrued expenses primarily representing required contributions to be made during 2016 for unfunded foreign plans) from $279.3 in 2014 primarily due to an increase in the discount rate. The Company estimates that, based on current actuarial calculations, it will make a cash contribution to the Plans in 2016 of approximately $22.0, most of which will be to the U.S. Plans. Cash contributions in subsequent years will depend on a number of factors including the investment performance of the respective Plans’ assets.

The Company offers various defined contribution plans for U.S. and foreign employees. Participation in these plans is based on certain eligibility requirements. The Company matches the majority of employee contributions to the U.S. defined contribution plans with cash contributions up to a maximum of 5% of eligible compensation. The Company provided matching contributions of approximately $4.2, $3.8 and $3.0 in 2015, 2014 and 2013, respectively.

Critical Accounting Policies and 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. Actual results could differ from those estimates. Estimates are adjusted as new information becomes available. The Company’s critical accounting policies and estimates are set forth below. The significant accounting policies are more fully described in Note 1 of the Notes to the Company’s Consolidated Financial Statements.

Revenue Recognition - The Company’s primary source of revenues is from product sales to its customers. Revenue from sales of the Company’s products is recognized at the time the goods are delivered, title passes and the risks and rewards of ownership pass to the customer, provided the earning process is complete and revenue is measurable. Such recognition generally occurs when the products reach the shipping point, the sales price is fixed and determinable, and collection is reasonably assured. Delivery is determined by the Company’s shipping terms, which are primarily freight on board shipping point. Revenue is recorded at the net amount to be received after deductions for estimated discounts, allowances and returns. These estimates and reserves are determined and adjusted as needed based upon historical experience, contract terms and other related factors. The shipping costs for the majority of the Company’s sales are paid directly by the Company’s customers. In the broadband communications market (approximately 6% of net sales in 2015), the Company pays for shipping costs to the majority of its customers. Shipping costs are also paid by the Company for certain customers in the Interconnect Products and Assemblies segment. Amounts billed to customers related to shipping costs are immaterial and are included in net sales. Shipping costs incurred to transport products to the customer which are not reimbursed are included in Selling, general and administrative expenses.

Inventories - Inventories are stated at the lower of standard cost, which approximates average cost, or market. Provisions for slow-moving and obsolete inventory are made based on historical experience and product demand. Should future product demand change, existing inventory could become slow-moving or obsolete, and provisions would be increased accordingly.

Depreciable Assets - Property, plant and equipment are carried at cost less accumulated depreciation. The appropriateness and the recoverability of the carrying value of such assets are periodically reviewed taking into consideration current and expected business conditions. The Company has not recorded any significant impairments.

Goodwill - Annually, the Company performs its evaluation for the impairment of goodwill for the Company’s two reporting units. The Company has defined its reporting units as the two reportable business segments “Interconnect Products and Assemblies” and “Cable Products and Solutions”, as the components of these reportable business segments have similar economic characteristics. In 2015, the Company changed its annual assessment date for goodwill impairment to be as of July 1, rather than June 30, which had no impact on the outcome of the assessment.

In 2014, the Company utilized the option to first assess qualitative factors to determine whether it was necessary to perform the two-step quantitative goodwill impairment assessment. In accordance with applicable guidance, an entity is not required to calculate the fair value of a reporting unit unless the Company determines, based on a qualitative assessment of events and circumstances, that it is more likely than not that its fair value is less than its carrying amount. The Company had determined that it was more likely than not that the fair value of its reporting units was greater than their carrying amounts.

In 2015, the Company exercised its option to bypass the qualitative assessment, and in the third quarter, the Company performed the first step of the two-step quantitative goodwill impairment assessment for each reportable business segment. As part of the quantitative assessment, the Company estimated the fair value of each of its reportable business segments using a market approach. The Company believes this approach provides the best indicator of fair value, by utilizing market prices and other relevant metrics for comparable publicly traded companies with similar operating and investment characteristics and recent transactions of similar

businesses within the industry. Significant estimates and assumptions were used in the Company’s goodwill impairment assessment including revenue and profitability projections, determination of appropriate publicly traded market comparison companies, and comparable revenue and earnings multiples derived from comparable publicly traded companies and from recent acquisitions within our industry. As part of our quantitative approach, the Company evaluated whether there were reasonably likely changes to management’s estimates and assumptions that would have a material impact on the results of the goodwill impairment assessment. As of July 1, 2015, we determined that the fair value of each of the Company’s reportable business segments was substantially in excess of their respective carrying amounts, and therefore, no goodwill impairment resulted from the assessment.

The Company has not recognized any goodwill impairment in 2015, 2014 or 2013 in connection with its annual impairment assessment.

Defined Benefit Plan Obligation - The defined benefit plan obligation is based on significant assumptions such as mortality rates, discount rates and plan asset rates of return as determined by the Company in consultation with the respective benefit plan actuaries and investment advisors. See Note 7 of the Notes to the Consolidated Financial Statements.

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. At December 31, 2015, the cumulative amount of undistributed earnings of foreign affiliated companies was approximately $3,699. Deferred income taxes are not provided on undistributed earnings of foreign affiliated companies as it is the Company’s intention to reinvest these earnings permanently outside the U.S. It is not practicable to estimate the amount of tax that might be payable if undistributed earnings were to be repatriated as there is a significant amount of uncertainty with respect to the tax impact of the remittance of these earnings due to the fact that dividends received from numerous foreign subsidiaries may generate additional foreign tax credits, which could ultimately reduce the U.S. tax cost of the dividend. These uncertainties are further complicated by the significant number of foreign tax jurisdictions and entities involved. 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.

Disclosures about contractual obligations and commitments

The following table summarizes the Company’s known obligations to make future payments pursuant to certain contracts as of December 31, 2015, as well as an estimate of the timing in which such obligations are expected to be satisfied.

		Payment Due By Period
Contractual Obligations (dollars in millions)		Total			Less than 1 year			1-3 years			3-5 years			More than 5 years
Debt (1)		$	2,826.8		$	0.3		$	1,201.9		$	749.5		$	875.1
Interest related to senior notes		280.9			56.7			107.5			65.0			51.7
Operating leases		118.4			36.9			46.1			22.5			12.9
Purchase obligations		198.0			186.5			11.4			0.1			—
Accrued pension and post-employment benefit obligations (2)		47.2			6.5			10.1			9.7			20.9
Total (3)		$	3,471.3		$	286.9		$	1,377.0		$	846.8		$	960.6

(1) The Company has excluded expected interest payments on the Revolving Credit Facility and Commercial Paper Program from the above table, as this calculation is largely dependent on average debt levels the Company expects to have during each of the years presented. The actual interest payments made related to the Company’s Revolving Credit Facility and Commercial Paper Program in 2015 were $6.2. Expected debt levels, and therefore expected interest payments, are difficult to predict, as they are significantly impacted by such items as future acquisitions, repurchases of treasury stock, dividend payments as well as payments or additional borrowings made to reduce or increase the underlying revolver balance.

(2) Included in this table are estimated benefit payments expected to be made under the Company’s unfunded pension and post-retirement benefit plans. The Company also maintains several funded pension and post-retirement benefit plans, the most significant of which covers its U.S. employees. Over the past several years, there has been no minimum requirement for Company contributions to the 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 2016. However, the Company did make a voluntary contribution to the U.S. Plans of approximately $15.0 in 2015 and anticipates making a similar voluntary contribution in 2016. It is not possible to reasonably estimate expected required contributions in the above table after 2016 since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets.

(3) As of December 31, 2015, the Company has non-current liabilities of approximately $20.6 recognized in accordance with the Income Taxes topic of the Accounting Standards Codification. 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.