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

(dollars in millions, except per share data)

The following discussion and analysis of the results of operations for the three years ended December 31, 2017, 2016 and 2015 has been derived from and should be read in conjunction with the Consolidated Financial Statements included in Part II, Item 8, herein. The Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The following discussion and analysis also includes references to certain non-GAAP financial measures, which are defined in the “Non-GAAP Financial Measures” section below, including “Constant Currency Net Sales Growth” and “Organic Net Sales Growth”. For purposes of the following discussion, the terms “constant currencies” and “organically” have the same meanings as these aforementioned non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” within this Item 7 for more information, including our reasons for including non-GAAP financial measures and material limitations with respect to the usefulness of the measures.

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

Overview

General

The Company is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. The Company operates through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. In 2017, approximately 72% 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 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 customers to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. The Company has focused its global resources to position itself to compete effectively in this environment. The Company believes that its global presence is an important competitive advantage as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers.

Strategy

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

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 2017, the Company reported net sales and operating income of $7,011.3 and $1,427.6, respectively, up 12% and 18%, respectively, from 2016. The Company also reported net income attributable to Amphenol Corporation of $650.5, down 21% from 2016, primarily as a result of the enactment of the Tax Cuts and Jobs Act which resulted in a provisional income tax charge of $398.5 in 2017 as discussed in more detail below and in the Notes to the Consolidated Financial Statements within this Annual Report on Form 10-K, in addition to the impact of the acquisition-related expenses incurred in the respective periods, partially offset by the excess tax benefits of $66.6 related to stock-based compensation as a result of the adoption of the new stock-based compensation standard. Excluding the effects of these items, Adjusted Operating Income and Adjusted Net Income attributable to Amphenol Corporation, as defined in the “Non-GAAP Financial Measures” section below and as reconciled in Part II, Item 6 and Item 7 herein, both increased by 15% in 2017. Sales and profitability trends are discussed in detail in “Results of Operations” below. In addition, a strength of the Company has been its ability to consistently generate cash from operations. 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 2017, the Company generated operating cash flow of $1,144.2.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the United States federal government enacted the Tax Cuts and Jobs Act (“Tax Act”), marking a change from a worldwide tax system to a modified territorial tax system in the United States. As part of this change, the Tax Act, among other changes, provides for a transition tax on the accumulated unremitted foreign earnings and profits of the Company’s foreign subsidiaries (“Transition Tax”) and a reduction of the U.S. federal corporate income tax rate from 35% to 21%. As a result, in the fourth quarter of 2017, the Company recorded an income tax charge of $398.5 (“Tax Act Charge”) that was comprised of (i) the Transition Tax of $259.4, (ii) a charge of $176.6 related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, partially offset by (iii) a tax benefit of $37.5 associated with the remeasurement of the Company’s U.S. net deferred tax liabilities due to the U.S. federal corporate tax rate reduction. As discussed under Critical Accounting Policies and Estimates within this Item 7, the three components of the Tax Act Charge are provisional amounts recorded in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 addresses the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Due to the timing of the Tax Act’s enactment and the complexity of its provisions, the Company has not completed its accounting for the impact of the Tax Act. The Company will analyze guidance and technical interpretations of the provisions of the Tax Act, as well as refine, analyze and update the underlying data, computations and assumptions used to prepare the Tax Act Charge. The Company will complete its accounting in 2018 once the Company has obtained, prepared and fully analyzed all the necessary information.

Refer to Note 4 of the Notes to the Consolidated Financial Statements for further discussion on the Tax Act. For a discussion of certain risks associated with changes to fiscal and tax policies including the Tax Act, refer to the risk factor titled “Changes in fiscal and tax policies, audits and examinations by taxing authorities could impact the Company’s results” in Part I, Item 1A herein.

Results of Operations

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

		Year Ended December 31,
		2017			2016			2015
Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		67.1			67.5			68.1
Acquisition-related expenses		—			0.6			0.1
Selling, general and administrative expenses		12.5			12.7			12.0
Operating income		20.4			19.2			19.8
Interest expense		(1.3)			(1.1)			(1.2)
Other income, net		0.2			0.1			0.3
Income before income taxes		19.3			18.2			18.9
Provision for income taxes		(9.9)			(4.9)			(5.0)
Net income		9.4			13.3			13.9
Net income attributable to noncontrolling interests		(0.1)			(0.2)			(0.2)
Net income attributable to Amphenol Corporation		9.3	%		13.1	%		13.7	%

2017 Compared to 2016

Net sales were $7,011.3 for the year ended December 31, 2017 compared to $6,286.4 for the year ended December 31, 2016, an increase of 12% in both U.S. dollars and constant currencies and 8% organically (excluding both currency and acquisition impacts) over the prior year. Net sales in the Interconnect Products and Assemblies segment (approximately 94% of net sales) increased 12% in both U.S. dollars and constant currencies and 9% organically in 2017, compared to 2016. The sales growth was driven primarily by growth in the industrial, automotive, information technology and data communications, mobile devices, military and commercial aerospace markets, with contributions from both organic strength as well as from the Company’s acquisitions, partially offset by a slight decline in sales in the mobile networks market. Net sales to the industrial market increased (approximately $244.4), reflecting sales strength in heavy equipment, industrial instrumentation, oil and gas, and factory automation as well as contributions from acquisitions. Net sales to the automotive market increased (approximately $177.0), driven by growth and expansion in all regions of the global automotive market, as well as contributions from acquisitions. Net sales to the information technology and data communications market increased (approximately $115.0), reflecting organic growth in products for data centers, including server and networking-related applications. Net sales to the mobile devices market increased (approximately $101.1) primarily due to growth in sales of products incorporated into smartphones and related accessories, partially offset by declining sales of products incorporated into tablets. Net sales to the military market increased (approximately $77.8), driven by broad strength across substantially all segments of the market including increased sales into military communications and military airframe applications, as well as missile applications. Net sales to the commercial aerospace market slightly increased (approximately $9.9) primarily due to the contributions from acquisitions as well as strength in large passenger planes, partially offset by continued weakness in demand for business jets and helicopters. Net sales to the mobile networks market decreased (approximately $20.3), primarily due to reduced overall capital spending by mobile operators. Net sales in the Cable Products and Solutions segment (approximately 6% of net sales), which is primarily in the broadband communications market, increased 11% in U.S. dollars and 10% in constant currencies in 2017, compared to 2016, primarily due to contributions from an acquisition made during the second half of 2016.

The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S. GAAP financial measures, by segment and consolidated, for the years ended December 31, 2017 and 2016:

								Percentage Growth (relative to prior year)
								Net sales			Foreign			Constant						Organic
								growth in			currency			Currency Net			Acquisition			Net Sales
								U.S. Dollars (1)			impact (2)			Sales Growth (3)			impact (4)			Growth (3)
		2017			2016			(GAAP)			(non-GAAP)			(non-GAAP)			(non-GAAP)			(non-GAAP)
Net sales:
Interconnect Products and Assemblies		$	6,606.9		$	5,922.3		12	%		—	%		12	%		3	%		9	%
Cable Products and Solutions			404.4			364.1		11	%		1	%		10	%		9	%		1	%
Consolidated		$	7,011.3		$	6,286.4		12	%		—	%		12	%		4	%		8	%

	(1)		Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 11 of the accompanying financial statements.

	(2)		Foreign currency translation impact, a non-GAAP measure, represents the impact on net sales resulting from foreign currency exchange rate changes in the current year period(s) compared to the prior year. Such amount is calculated by translating current year net sales at average foreign currency exchange rates for the respective prior year.

	(3)		Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the "Non-GAAP Financial Measures" section.

	(4)		Acquisition impact, a non-GAAP measure, represents the impact on net sales resulting from acquisitions closed during the years presented, which were not included in the Company’s results as of the comparable prior year and which do not reflect the underlying growth of the Company on a comparative basis.

Geographically, net sales in the United States in 2017 increased approximately 14% in U.S. dollars ($1,978.4 in 2017 versus $1,740.7 in 2016) and 8% organically, compared to 2016. International sales in 2017 increased approximately 11% in U.S. dollars ($5,032.9 in 2017 versus $4,545.7 in 2016), 10% in constant currencies and 8% organically, compared to 2016 with strength in both Asia and Europe. The comparatively weaker U.S. dollar in 2017 had the effect of increasing net sales by approximately $13.1 compared to 2016.

Gross profit margin as a percentage of net sales was 32.9% in 2017 compared to 32.5% in 2016. The increase in gross profit margin as a percentage of net sales relates primarily to higher gross profit margins in the Interconnect Products and Assemblies segment reflecting the benefit of higher volumes and strong operational execution.

Selling, general and administrative expenses were $878.3 or 12.5% of net sales for 2017, compared to $798.2 or 12.7% of net sales for 2016. Administrative expenses increased approximately $28.9 in 2017 primarily related to increases in stock-based compensation expense, employee-related benefits and amortization of acquisition-related identified intangible assets, and represented approximately 4.8% of net sales in 2017 and 4.9% of net sales in 2016. Research and development expenses increased approximately $27.6 in 2017 primarily related to increases in expenses for new product development and represented approximately 2.8% of net sales in 2017 and 2.6% of net sales in 2016. Selling and marketing expenses increased approximately $23.6 in 2017 primarily related to the increase in sales volume and represented approximately 4.9% of net sales in 2017 and 5.1% of net sales in 2016.

Operating income was $1,427.6 or 20.4% of net sales in 2017, compared to $1,205.2 or 19.2% of net sales in 2016. Operating income for 2017 includes $4.0 of acquisition-related expenses, related to external transaction costs incurred in the second quarter of 2017. Operating income for 2016 includes $36.6 of acquisition-related expenses, which includes external transaction costs, amortization related to the value associated with acquired backlog and post-closing restructuring charges related to the acquisition of FCI Asia Pte. Ltd. (“FCI”), as well as transaction costs associated with other acquisitions. These acquisition-related expenses are separately presented in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, were $1,431.6 or 20.4% of net sales in 2017 and $1,241.8 or 19.8% in 2016. The increase in Adjusted Operating Margin for 2017 compared to 2016, was driven primarily by an increase in operating margin for the Interconnect Products and Assemblies segment. Operating income for the Interconnect Products and Assemblies segment in 2017 was $1,475.2 or 22.3% of net sales, compared to $1,280.3 or 21.6% of net sales in 2016. The increase in operating income margin was driven primarily by the higher gross profit margin as discussed above. In addition, the operating income for the Cable Products and Solutions segment in 2017 was $54.2 or 13.4% of net sales, compared to $52.8 or 14.5% of net sales in 2016. The decrease in operating income margin for the Cable Products and Solutions segment in 2017 compared to 2016 was primarily driven by increases in certain commodity costs.

Interest expense was $92.3 in 2017 compared to $72.6 in 2016. The increase is primarily due to higher average debt levels, which resulted from the Company’s dividend and stock buyback programs, as well as higher average interest rates partially driven by the senior note issuances in April 2017.

Other income, net, increased to $17.1 in 2017 compared to $8.5 in 2016. The increase is primarily related to higher interest income on higher cash equivalents and short-term investment balances.

Provision for income taxes was at an effective rate of 51.1% in 2017 and 27.0% in 2016. The increase in the effective tax rate in 2017 resulted primarily from the Tax Act Charge of $398.5, partially offset by the excess tax benefits of $66.6 related to stock-based compensation as a result of the adoption of the new stock-based compensation standard in 2017 (the adoption of ASU 2016-09 is discussed in Note 1 of the Notes to the Consolidated Financial Statements). Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, was 26.5% for both 2017 and 2016, as reconciled in the table below to the comparable effective tax rate based on GAAP results. For additional details related to the reconciliation between the U.S. statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 4 of the Notes to the Consolidated Financial Statements.

Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) was $650.5 and $2.06, respectively, for 2017, compared to $822.9 and $2.61, respectively, for 2016. Excluding the effect of the aforementioned (a) Tax Act Charge, (b) excess tax benefits related to stock-based compensation and (c) the acquisition-related expenses incurred in 2017 and 2016, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $986.1 and $3.12, respectively, for 2017, compared to $856.0 and $2.72, respectively, for 2016.

The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2017 and 2016:

		2017													2016
							Net Income													Net Income
							attributable			Effective										attributable			Effective
		Operating			Operating		to Amphenol			Tax		Diluted			Operating			Operating		to Amphenol			Tax		Diluted
		Income			Margin (1)		Corporation			Rate (1)		EPS			Income			Margin (1)		Corporation			Rate (1)		EPS
Reported (GAAP)		$	1,427.6		20.4	%	$	650.5		51.1	%	$	2.06		$	1,205.2		19.2	%	$	822.9		27.0	%	$	2.61
Acquisition-related expenses			4.0		-			3.7		-			0.01			36.6		0.6			33.1		(0.5)			0.11
Excess tax benefits related to stock-based compensation			-		-			(66.6)		4.9			(0.21)			-		-			-		-			-
Tax Act Charge			-		-			398.5		(29.5)			1.26			-		-			-		-			-
Adjusted (non-GAAP)		$	1,431.6		20.4	%	$	986.1		26.5	%	$	3.12		$	1,241.8		19.8	%	$	856.0		26.5	%	$	2.72

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

2016 Compared to 2015

Net sales were $6,286.4 for the year ended December 31, 2016 compared to $5,568.7 for the year ended December 31, 2015, an increase of 13% in U.S. dollars, 14% in constant currencies and 2% organically (excluding both currency and acquisition impacts) over the prior year. Net sales in the Interconnect Products and Assemblies segment (approximately 94% of net sales) increased 13% in U.S. dollars, 14% in constant currencies and 2% organically in 2016, compared to 2015. The sales growth was driven primarily by growth in the information technology and data communications, industrial, automotive, mobile networks and military markets, with contributions from both the Company’s acquisitions as well as organic strength, partially offset by a decline in sales in the mobile devices market and a slight decline in the commercial aerospace market. Net sales to the information technology and data communications market increased (approximately $404.0), reflecting the benefits of FCI and other acquisitions as well as growth in products for data centers, including server, networking and storage-related applications. Net sales to the industrial market increased (approximately $183.9) reflecting the benefit of acquisitions including FCI as well as sales strength in hybrid bus and truck, factory automation and heavy equipment, which was partially offset by sales declines in

products sold into oil and gas exploration and alternative energy applications. Net sales to the automotive market increased (approximately $118.3), driven by both an expansion of our products across a diversified range of vehicles and new onboard electronics as well as contributions from acquisitions. Net sales to the mobile networks market increased (approximately $114.9), primarily due to contributions from acquisitions including FCI as well as increased sales to mobile network service providers and original equipment manufacturers. Net sales to the military market increased (approximately $24.0), driven primarily by increased sales into avionics packaging and military airframe applications. Net sales to the mobile devices market decreased (approximately $158.8) primarily due to declining sales of products incorporated into tablets, smartphones and production-related products, partially offset by growth in sales of products incorporated into new wearable technologies. Net sales to the commercial aerospace market slightly decreased (approximately $2.5) due to decreases in commercial helicopter and business jet demand which offset the growth associated with new airplane platforms. Net sales in the Cable Products and Solutions segment (approximately 6% of net sales), which is primarily in the broadband communications market, increased 10% in U.S. dollars, 12% in constant currencies and 9% organically in 2016, compared to 2015, primarily due to the sales increase in the broadband communications market and contributions from an acquisition made during the second half of 2016.

The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S. GAAP financial measures, by segment and consolidated, for the years ended December 31, 2016 and 2015:

								Percentage Growth (relative to prior year)
								Net sales			Foreign			Constant						Organic
								growth in			currency			Currency Net			Acquisition			Net Sales
								U.S. Dollars (1)			impact (2)			Sales Growth (3)			impact (4)			Growth (3)
		2016			2015			(GAAP)			(non-GAAP)			(non-GAAP)			(non-GAAP)			(non-GAAP)
Net sales:
Interconnect Products and Assemblies		$	5,922.3		$	5,239.1		13	%		(1)	%		14	%		12	%		2	%
Cable Products and Solutions			364.1			329.6		10	%		(2)	%		12	%		3	%		9	%
Consolidated		$	6,286.4		$	5,568.7		13	%		(1)	%		14	%		12	%		2	%

	(1)		Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 11 of the accompanying financial statements.

	(2)		Foreign currency translation impact, a non-GAAP measure, represents the impact on net sales resulting from foreign currency exchange rate changes in the current year period(s) compared to the prior year. Such amount is calculated by translating current year net sales at average foreign currency exchange rates for the respective prior year.

	(3)		Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the "Non-GAAP Financial Measures" section.

	(4)		Acquisition impact, a non-GAAP measure, represents the impact on net sales resulting from acquisitions closed during the years presented, which were not included in the Company’s results as of the comparable prior year and which do not reflect the underlying growth of the Company on a comparative basis.

Geographically, net sales in the U.S. in 2016 increased approximately 3% in U.S. dollars ($1,740.7 in 2016 versus $1,696.3 in 2015) compared to 2015. International sales in 2016 increased approximately 17% in U.S. dollars ($4,545.7 in 2016 versus $3,872.4 in 2015), 19% in constant currencies and 5% organically, compared to 2015 with strength in both Asia and Europe. The comparatively stronger U.S. dollar in 2016 had the effect of decreasing net sales by approximately $61.3 compared to 2015.

Gross profit margin as a percentage of net sales was 32.5% in 2016 compared to 31.9% in 2015. The increase in gross profit margin as a percentage of net 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 as well as the impact of the FCI acquisition, which had higher gross margins than the average of the Company.

Selling, general and administrative expenses were $798.2 or 12.7% of net sales for 2016, compared to $669.1 or 12.0% of net sales for 2015. The increase is driven primarily by the impact of the FCI acquisition, which has higher selling, general and administrative expenses as a percentage of net sales than the average of the Company. Administrative expenses increased approximately $41.2 in 2016 primarily related to the impact of the FCI acquisition and increases in the amortization of acquisition-related identified intangible assets and stock-based compensation expense and represented approximately 4.9% of net sales in 2016 and 4.8% of net sales in 2015. Research and development expenses increased approximately $41.4 in 2016 primarily related to the impact of the FCI acquisition and represented approximately 2.6% of net sales in 2016 and 2.2% of net sales in 2015. Selling and marketing expenses increased approximately $46.5 in 2016 primarily related to the impact of the FCI acquisition and an increase in sales volume and represented approximately 5.1% of net sales in 2016 and 5.0% of net sales in 2015.

Operating income was $1,205.2 or 19.2% of net sales in 2016, compared to $1,104.7 or 19.8% of net sales in 2015. Operating income for 2016 includes $36.6 of acquisition-related expenses, which included external transaction costs, amortization related to the value associated with acquired backlog and post-closing restructuring charges related to the FCI acquisition, as well as transaction costs associated with other acquisitions. Operating income for 2015 includes $5.7 of acquisition-related expenses, which includes professional and transaction-related fees and other external expenses related to acquisitions closed and announced in 2015. These acquisition-related expenses are separately presented in the Consolidated Statements of Income. For the years ended December 31, 2016 and 2015, these expenses had an impact on net income of $33.1, or $0.11 per share, and $5.7, or $0.02 per share, respectively. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, were $1,241.8 or 19.8% of net sales in 2016 and $1,110.4 or 19.9% in 2015. The decrease in Adjusted Operating Margin for 2016 compared to 2015, relates to the decrease in operating margin for the Interconnect Products and Assemblies segment. Operating income for the Interconnect Products and Assemblies segment in 2016 was $1,280.3 or 21.6% of net sales, compared to $1,158.3 or 22.1% of net sales in 2015. The slight decrease in operating income margin is driven by the impact of the FCI acquisition, which had a lower operating margin than the average of the Interconnect Products and Assemblies segment for the full year period. In addition, the operating income for the Cable Products and Solutions segment in 2016 was $52.8 or 14.5% of net sales, compared to $40.3 or 12.2% of net sales in 2015. The increase in operating income margin for the Cable Products and Solutions segment in 2016 compared to 2015 was primarily as a result of strong operating execution on additional volume, along with the benefit from the favorable impact from commodities.

Interest expense was $72.6 in 2016 compared to $68.3 in 2015. The increase is primarily attributable to the impact of higher average debt levels in 2016 which primarily resulted from the Company’s dividend and stock buyback programs.

Other income, net, decreased to $8.5 in 2016 compared to $16.4 in 2015, primarily related to lower interest income on lower cash equivalents and short-term investments, which resulted from the funding of the acquisition of FCI in January 2016 with cash, cash equivalents and short-term investments held outside of the United States.

Provision for income taxes was at an effective rate of 27.0% in 2016 and 26.6% in 2015. The effective tax rate for 2016 and 2015 included the effect of acquisition-related expenses incurred during each year. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, was 26.5% for both 2016 and 2015, as reconciled in the table below to the comparable effective tax rate based on GAAP results. For additional details related to the reconciliation between the U.S. statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 4 of the Notes to the Consolidated Financial Statements.

Net income attributable to Amphenol Corporation and Diluted EPS was $822.9 and $2.61, respectively, for 2016, compared to $763.5 and $2.41, respectively, for 2015. Excluding the effect of the acquisition-related expenses incurred in 2016, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, as defined in the “Non-GAAP Financial Measures” section below, were $856.0 and $2.72, respectively, for 2016, compared to $769.2 and $2.43, respectively, for 2015.

The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2016 and 2015:

		2016													2015
							Net Income													Net Income
							attributable			Effective										attributable			Effective
		Operating			Operating		to Amphenol			Tax		Diluted			Operating			Operating		to Amphenol			Tax		Diluted
		Income			Margin (1)		Corporation			Rate (1)		EPS			Income			Margin (1)		Corporation			Rate (1)		EPS
Reported (GAAP)		$	1,205.2		19.2	%	$	822.9		27.0	%	$	2.61		$	1,104.7		19.8	%	$	763.5		26.6	%	$	2.41
Acquisition-related expenses			36.6		0.6			33.1		(0.5)			0.11			5.7		0.1			5.7		(0.1)			0.02
Adjusted (non-GAAP)		$	1,241.8		19.8	%	$	856.0		26.5	%	$	2.72		$	1,110.4		19.9	%	$	769.2		26.5	%	$	2.43

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

Liquidity and Capital Resources

At December 31, 2017 and 2016, the Company had cash, cash equivalents and short-term investments of $1,753.7 and $1,173.2, respectively. The vast majority of the Company’s cash, cash equivalents and short-term investments on hand as of December 31, 2017 is located outside of the United States. The Tax Act’s change to a modified territorial tax system in the United States significantly reduces the future tax expense associated with the remittance of foreign earnings, among other changes. As a result of this change, the Company plans to repatriate a significant portion of its cash, cash equivalents and short-term investments in 2018. Additionally, in connection with the Tax Act, the Company recorded a provisional charge for the foreign and U.S. state and local tax cost related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, due to our intention to repatriate such foreign earnings over time. Such taxes will be paid when those respective earnings are repatriated. For the year ended December 31, 2017, the Tax Act also resulted in a Transition Tax on the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries, which we will pay, net of applicable tax credits and deductions, over the next eight years starting in 2018. The Company does not believe that these future tax payments will have a significant impact on its liquidity or capital resources.

Cash Flow Summary

The following table summarizes the Company’s cash flows from operating, investing and financing activities for the years ended December 31, 2017, 2016 and 2015, as reflected in the Consolidated Statements of Cash Flow:

		Year Ended December 31,
		2017			2016			2015
Net cash provided by operating activities		$	1,144.2		$	1,077.6		$	1,030.5
Net cash used in investing activities			(380.2)			(1,612.7)			(27.3)
Net cash used in financing activities			(140.1)			(133.5)			(180.1)
Effect of exchange rate changes on cash and cash equivalents			60.6			(34.0)			(54.8)
Net change in cash and cash equivalents		$	684.5		$	(702.6)		$	768.3

Operating Activities

The ability to generate cash from operating activities has been one of the Company’s fundamental financial strengths. Cash flow provided by operating activities was $1,144.2 for 2017 compared to $1,077.6 for 2016. The increase in cash flow provided by operating activities in 2017 was primarily due to an increase in net income (excluding the effects of the non-cash Tax Act Charge of $398.5), which more than offset a higher usage of cash related to the change in working capital. Cash flow provided by operating activities was $1,077.6 for 2016 compared to $1,030.5 for 2015. The increase in cash flow provided by operating activities for 2016 compared to 2015 is primarily related to an increase in net income, higher non-cash charges resulting from the increase in depreciation and amortization related to the FCI acquisition, and a higher decrease in the net components of working capital, which were partially offset by a higher usage of cash related to the change in long-term assets and liabilities.

In 2017, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $158.1, excluding the impact of acquisitions and foreign currency translation, due primarily to increases in accounts receivable, inventories and other current assets of $146.5, $100.4 and $75.9, respectively, partially offset by increases in accounts payable and accrued liabilities of $140.5 and $24.2, respectively. In 2016, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow decreased $51.2, excluding the impact of acquisitions and foreign currency translation, due primarily to increases in accrued income taxes, other accrued liabilities, and accounts payable of $91.7, $61.9, and $47.8, respectively, and a decrease in other current assets of $29.9, partially offset by increases in accounts receivable and inventories of $165.9 and $14.2, respectively. In 2015, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow decreased $46.9, excluding the impact of acquisitions and foreign currency translation, 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 a decrease in accounts payable of $17.5.

The following describes the significant changes in the amounts as presented on the accompanying Consolidated Balance Sheets at December 31, 2017 compared to December 31, 2016. Accounts receivable increased $249.3 to $1,598.6 primarily due to increased sales volumes, the impact of our 2017 acquisitions and the effect of translation from

exchange rate changes at December 31, 2017 compared to December 31, 2016 (“Translation”). Days sales outstanding at December 31, 2017 and 2016 were approximately 73 days. Inventories increased $178.0 to $1,106.9, primarily to support expected future sales levels, along with the impact of the 2017 acquisitions and Translation. Inventory days at December 31, 2017 and 2016 were 76 days. Other current assets increased $57.0 to $196.8 primarily due to increases in other receivables and prepaid expenses. Property, plant and equipment, net, increased $105.4 to $816.8, primarily due to capital expenditures of $226.6 as well as Translation and the impact of 2017 acquisitions, partially offset by depreciation of $173.0 and disposals. Goodwill increased $363.8 to $4,042.6 primarily as a result of goodwill recognized related to five acquisitions in the Interconnect Products and Assemblies segment in 2017, as well as Translation. Intangibles, net and other long-term assets decreased $28.8 to $488.5 primarily as a result of the amortization of $48.6 on intangible assets, partially offset by the identifiable intangible assets of $13.3 recognized related to 2017 acquisitions and Translation. Accounts payable increased $197.4 to $875.6, primarily as a result of an increase in purchasing activity related to higher sales levels as well as Translation and the impact of 2017 acquisitions. Payable days at December 31, 2017 and 2016 were 60 and 55, respectively. Total accrued expenses, including accrued income taxes, increased $120.9 to $702.7, primarily as a result of an increase in accrued wages and salaries and employee-related benefits as well as an increase of approximately $63.1 related to the Tax Act Charge. Other long-term liabilities, including deferred tax liabilities, increased $351.1 to $567.6, primarily as a result of an increase of approximately $335.4 recorded in 2017 related to the Tax Act Charge.

In 2017, the Company made aggregate cash contributions to its defined benefit pension plans (the “Plans”) of approximately $22.5, the majority of which was to its defined benefit pension plans in the United States (“U.S. Plans”). The Company estimates that, based on current actuarial calculations and the Company’s funding intentions, it will make aggregate cash contributions to the Plans in 2018 of approximately $90.0, of which approximately $80.0 represents voluntary contributions made in January 2018 to substantially fund the U.S. 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.

In addition to cash flow from operating activities, the Company also considers Free Cash Flow, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, as a key metric in measuring the Company’s ability to generate cash. The following table reconciles Free Cash Flow to its most directly comparable U.S. GAAP financial measure for the years ended December 31, 2017, 2016 and 2015. The increase in Free Cash Flow in 2017 is primarily related to an increase in net cash provided by operating activities (operating cash flow) as described above, which more than offset the increase in capital expenditures.

		2017			2016			2015
Net cash provided by operating activities (GAAP)		$	1,144.2		$	1,077.6		$	1,030.5
Capital expenditures (GAAP)			(226.6)			(190.8)			(172.1)
Free Cash Flow (non-GAAP)		$	917.6		$	886.8		$	858.4

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 sales and maturities (purchases) of short-term investments, and acquisitions.

Net cash used in investing activities was $380.2 in 2017, compared to $1,612.7 in 2016 and $27.3 in 2015. In 2017, cash used in investing activities was driven primarily by the use of $265.5 in cash to fund acquisitions and $222.5 for capital expenditures (net of disposals), partially offset by net sales and maturities of short-term investments of $107.8. In 2016, cash used in investing activities was driven primarily by the use of $1,305.1 in cash to fund acquisitions, most significantly the acquisition of FCI for $1,178.6, capital expenditures (net of disposals) of $183.7, and net purchases of short-term investments of $123.9. In 2015, cash used in investing activities was driven primarily by the use of $199.8 in cash to fund acquisitions and $163.4 for capital expenditures (net of disposals), partially offset by net sales and maturities of short-term investments of $335.9.

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 the exercise of stock options, dividend payments and distributions to noncontrolling interests.

Net cash used in financing activities was $140.1 in 2017, compared to $133.5 in 2016 and $180.1 in 2015. In 2017, cash used in financing activities was driven primarily by repurchases of the Company’s common stock of $618.0, repayment of the 1.55% Senior Notes of $375.0, dividend payments of $205.0, purchases of and distributions to shareholders of noncontrolling interests of $24.4 and payments of costs related to the issuances of our two new series of senior notes of $5.2, partially offset by net cash proceeds from both the issuance of our two new series of senior notes and increased net borrowings under the commercial paper program of $903.4 combined, as well as the exercise of stock options of $184.1. In 2016, cash used in financing activities was driven primarily by repurchases of the Company’s common stock of $325.8, dividend payments of $172.7, distributions to shareholders of noncontrolling interests of $6.8 and payments of costs related to the refinancing of our revolving credit facility of $3.0, partially offset by cash proceeds from the exercise of stock options including the related excess tax benefits of $191.6 and increased net borrowings of $183.2. In 2015, cash used in financing activities of $180.1 was driven primarily by repurchases of the Company’s common stock of $248.9, dividend payments of $159.3 and distributions to shareholders of noncontrolling interests of $6.1, partially offset by increased net borrowings of $153.6 and cash proceeds from the exercise of stock options including the related excess tax benefits of $80.6.

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 been, and continues to be, able to borrow funds at reasonable interest rates. The Company’s debt financing includes the use of the commercial paper program, the revolving credit facility and senior notes as part of its overall cash management strategy.

On March 1, 2016, the Company replaced its $1,500.0 unsecured credit facility with a new $2,000.0 unsecured credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility, which matures March 2021, increases the aggregate commitments by $500.0 and gives the Company the ability to borrow at a spread over LIBOR. The Company intends to utilize the Revolving Credit Facility for general corporate purposes. At December 31, 2017, there were no 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. At December 31, 2017, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

The Company has a commercial paper program (the “Commercial Paper Program”) pursuant to which the Company issues short-term unsecured commercial paper notes in one or more private placements. In April 2016, the maximum aggregate principal amount of the commercial paper notes that may be outstanding at any time was increased by $500.0 from $1,500.0 to $2,000.0 under the Commercial Paper Program. 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 amount of commercial paper notes outstanding as of December 31, 2017 was $1,175.4. 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, 2017, the Company has outstanding senior notes (the “Senior Notes”) as follows:

Principal			Interest
Amount			Rate		Maturity
$	750.0		2.55	%	January 2019
	400.0		2.20	%	April 2020
	375.0		3.125	%	September 2021
	500.0		4.00	%	February 2022
	350.0		3.20	%	April 2024

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, subject to certain terms and conditions. On April 5, 2017, the Company issued $400.0 principal amount of unsecured 2.20% Senior Notes due April 1, 2020 (the “2020 Senior Notes”)

and $350.0 principal amount of unsecured 3.20% Senior Notes due April 1, 2024 (the “2024 Senior Notes” and, together with the 2020 Senior Notes, the “Notes”). In 2017, the Company incurred approximately $5.2 of costs related to the issuances of the Notes, which are amortized to interest expense over the respective terms of the debt.

In September 2017, the Company used the net proceeds from the Notes to repay all of its outstanding $375.0 principal amount of 1.55% Senior Notes that were due September 15, 2017, with the remainder of the net proceeds being used for general corporate purposes.

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

On January 24, 2017, the Company’s Board of Directors authorized a new stock repurchase program under which the Company may purchase up to $1,000.0 of the Company’s Common Stock during the two-year period ending January 24, 2019 in accordance with the requirements of Rule 10b-18 of the Exchange Act (the “2017 Stock Repurchase Program”). During the year ended December 31, 2017, the Company repurchased 8.4 million shares of its Common Stock for $618.0. These treasury shares have been retired by the Company and Common Stock and retained earnings were reduced accordingly. From January 1, 2018 through January 31, 2018, the Company repurchased approximately 1.1 million additional shares of Common Stock for $105.5, leaving approximately $276.5 available to purchase under the 2017 Stock Repurchase Program. The price and timing of any future purchases under the 2017 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, dividends, economic and market conditions and stock price.

In January 2015, the Company’s Board of Directors authorized a stock repurchase program under which the Company could repurchase up to 10 million shares of its Common Stock during the two-year period ended January 20, 2017 (the “2015 Stock Repurchase Program”). During the years ended December 31, 2016 and 2015, the Company repurchased 5.5 million and 4.5 million shares of its Common Stock for $325.8 and $248.9, respectively. These treasury shares have been retired by the Company and Common Stock and retained earnings were reduced accordingly. At December 31, 2016, the Company had repurchased all of the shares authorized under the 2015 Stock Repurchase Program.

Contingent upon declaration by the Board of Directors, the Company generally pays a quarterly dividend on shares of its Common Stock. The following table summarizes the declared quarterly dividends per share for each of the three years ended December 31, 2017, 2016 and 2015:

		2017			2016			2015
First Quarter		$	0.16		$	0.14		$	0.125
Second Quarter			0.16			0.14			0.125
Third Quarter			0.19			0.14			0.14
Fourth Quarter			0.19			0.16			0.14

Dividends declared and paid for the years ended December 31, 2017, 2016 and 2015 were as follows:

		2017			2016			2015
Dividends declared		$	213.7		$	178.8		$	163.7
Dividends paid (including those declared in the prior year)			205.0			172.7			159.3

Liquidity and Cash Requirements

The Company’s primary sources of liquidity are internally generated cash flow, the Commercial Paper Program, the Revolving Credit Facility, and its cash, cash equivalents and short-term investments on hand. The Company believes that its cash, cash equivalents and short-term investment position on hand, ability to generate future cash flow from operations, availability under its credit facilities, and access to capital markets (including the issuances of both the 2020 Senior Notes and 2024 Senior Notes in April 2017) provide adequate liquidity to meet its obligations for the next twelve months and for the foreseeable future, including the repayment of the $750.0 outstanding principal amount of 2.55% Senior Notes due January 2019 (the “2.55% Notes”).

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 (including the repayment of the 2.55% Notes), and payments associated with the Transition Tax which is payable over eight years beginning in 2018 and taxes due upon the repatriation of foreign earnings which will be payable upon the repatriation of such earnings as discussed above. 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. The Company also expects to use cash to fund all or part of the cost of acquisitions, as it did with the 2016 acquisition of FCI. The Company expects that capital expenditures in 2018 will be in a range of 3% to 4% of net sales.

FCI Acquisition

On January 8, 2016, pursuant to a Purchase Agreement dated July 17, 2015 as amended on December 31, 2015, the Company acquired all of the share capital of FCI for an aggregate purchase price of approximately $1,178.6, net of cash acquired, which was funded by cash, cash equivalents and short-term investments on hand that were held outside of the United States.

Refer to Note 9 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 adverse 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. 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 communications related markets, implementing price increases 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, operating 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, including in the event of a significant and sudden decline in the value of any of the international currencies of the Company’s worldwide operations. For further discussion of foreign exchange exposures, risks and uncertainties, refer to the risk factor titled “The Company’s results may be negatively affected by foreign currency exchange rates” in Part I, Item 1A herein.

Non-GAAP Financial Measures

In addition to assessing the Company’s financial condition, results of operations, liquidity and cash flows in accordance with U.S. GAAP, management utilizes certain non-GAAP financial measures defined below as part of its internal reviews for purposes of monitoring, evaluating and forecasting the Company’s financial performance, communicating operating results to the Company's Board of Directors and assessing related employee compensation measures. Management believes that these non-GAAP financial measures may be helpful to investors in assessing the Company’s overall financial performance, trends and year-over-year comparative results, in addition to the reasons noted below. Non-GAAP financial measures related to operating income, operating margin, net income attributable to Amphenol Corporation, effective tax rate and diluted EPS exclude income and expenses that are not directly related to

the Company's operating performance during the years presented. Items excluded in 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 Tax Act Charge and (ii) the excess tax benefits related to stock-based compensation that may arise during such periods. As a result of the Tax Act’s reduction of a substantial portion of the future tax benefits of the Company’s stock option program as well as 2017 being the first year in which these excess tax benefits were reflected in income under U.S. GAAP, the Company has excluded and will continue to exclude the excess tax benefit of stock option exercises in the presentation of its adjusted non-GAAP financial measures. Non-GAAP financial measures related to net sales exclude the impact related to foreign currency exchange 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 related U.S. GAAP financial measures. In addition, these non-GAAP financial measures are not necessarily the same or comparable to similar measures presented by other companies, as such measures may be calculated differently or may exclude different items.

The non-GAAP financial measures defined below should be read in conjunction with the Company’s financial statements presented in accordance with U.S. GAAP. The reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2017, 2016 and 2015 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 7:

	·		Adjusted Diluted EPS is defined as diluted earnings per share (as reported in accordance with U.S. GAAP), excluding income and expenses and their specific tax effects, that are not directly related to the Company's operating performance during the years presented. Adjusted Diluted EPS is calculated as Adjusted Net Income attributable to Amphenol Corporation, as defined above, divided by the weighted average outstanding diluted shares as reported in the Company’s Consolidated Statements of Income.

	·		Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Consolidated Statements of Income, expressed as a percentage of Income before income taxes, as reported in the Consolidated Statements of Income, each excluding the income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.

	·		Adjusted Net Income attributable to Amphenol Corporation is defined as Net income attributable to Amphenol Corporation, as reported in the Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company's operating performance during the years presented.

	·		Adjusted Operating Income is defined as Operating income, as reported in the Consolidated Statements of Income, excluding income and expenses that are not directly related to the Company's operating performance during the years presented.

	·		Adjusted Operating Margin is defined as Adjusted Operating Income (as defined above) expressed as a percentage of Net sales (as reported in the Consolidated Statements of Income).

	·		Constant Currency Net Sales Growth is defined as the year-over-year percentage change in net sales growth, excluding the impact of changes in foreign currency exchange rates. Our results are subject to volatility related to foreign currency translation fluctuations. As such, management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Organic Net Sales Growth (defined below) and Constant Currency Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.

	·		Free Cash Flow is defined as Net cash provided by operating activities (“operating cash flow” - as reported in accordance with U.S. GAAP) less capital expenditures (as reported in accordance with U.S. GAAP), both of which are derived from the Company’s 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 shareholders through either stock repurchases or dividends.

	·		Organic Net Sales Growth is defined as the year-over-year percentage change in net sales growth resulting from operating volume and pricing changes, and excludes the impact of 1) changes in foreign currency exchange

rates, which directly impact the Company’s operating results and are outside the control of the Company and 2) acquisitions closed during the years presented, which were not included in the Company’s results as of the comparable prior years and which do not reflect the underlying growth of the Company on a comparative basis. Management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Constant Currency Net Sales Growth (defined above) and Organic Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.

Recent Accounting Pronouncements

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

Pensions

The Company and certain of its subsidiaries in the United States have defined benefit pension plans (“U.S. Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory. 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” and, together with the U.S. Plans, the “Plans”). The total liability for accrued pension and postretirement benefit obligations under the Company’s pension and postretirement benefit plans decreased in 2017 to $256.9 ($4.4 of which represents the expected benefit payments to be made during 2018 primarily for unfunded foreign plans, as included in other accrued expenses) from $277.0 in 2016 primarily due to higher returns on plan assets realized in 2017, partly offset by the impact of lower discount rates on our projected benefit obligation. The Company estimates that, based on current actuarial calculations and the Company’s funding intentions, it will make aggregate cash contributions to the Plans in 2018 of approximately $90.0, of which approximately $80.0 represents voluntary contributions made in January 2018 to substantially fund the U.S. Plans. The timing and amount of cash contributions in subsequent years will depend on a number of factors including the investment performance of the Plans’ assets.

Refer to Note 7 of the Notes to the Company’s Consolidated Financial Statements for further discussion of the Company’s benefit plans and other postretirement benefit plans.

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 earnings 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 2017), 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 net realizable value. The principal components of cost included in inventories are materials, direct labor and manufacturing overhead. The Company regularly reviews inventory quantities on hand, evaluates the realizability of inventories and adjusts the carrying value as necessary based on forecasted product demand. 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.

Goodwill - The Company performs its evaluation for the impairment of goodwill for the Company’s two reporting units on an annual basis or more frequently if an event occurs or circumstances change that would indicate that a reporting unit’s carrying amount may be impaired. 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 2017 and 2016, 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. As part of this assessment, the Company reviews qualitative factors, which include but are not limited to, economic, market and industry conditions, as well as the financial performance of each reporting unit. In accordance with applicable guidance, an entity is not required to calculate the fair value of a reporting unit if, after assessing these qualitative factors, the Company determines that it is more likely than not that the fair value of its reporting units is greater than its respective carrying amount. As of July 1, 2017 and 2016, the Company determined that it was more likely than not that the fair value of its reporting units exceeded their respective carrying amounts.

The Company has not recognized any goodwill impairment in 2017, 2016 or 2015 in connection with its annual impairment assessment.

Acquisitions - The Company accounts for acquisitions using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. The purchase price of acquisitions is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on estimated fair values, and any excess purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. Any subsequent adjustments to the purchase price allocation prior to the completion of the measurement period will be reflected as an adjustment to goodwill in the period in which the adjustments are identified. The Company may use independent valuation specialists to assist in determining the estimated fair values of assets acquired and liabilities assumed, which could require certain significant management assumptions and estimates.

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. Refer to 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. The Company recognizes the effects of changes in tax laws and rates on deferred income taxes in the period in which legislation is enacted. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. As of December 31, 2017, the Company has not provided for deferred income taxes on undistributed foreign earnings related to certain geographies of approximately $492.8, as it is the Company’s intention to permanently reinvest such earnings outside the United States. The amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated would not be material. In addition, the Company remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its investments in foreign subsidiaries. It is not practicable to determine the deferred tax liability with respect to such basis differences. Deferred tax assets are regularly assessed for recoverability based on both historical and anticipated earnings levels and a valuation allowance is recorded when it is more likely than not that these amounts will not be recovered. The tax effects of an uncertain tax position taken or expected to be taken in income tax returns are recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes.

As a result of the Tax Act, the Company has recorded (i) a provisional income tax charge related to the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries, (ii) a provisional income tax

charge related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, partially offset by (iii) a provisional income tax benefit associated with the remeasurement of its net deferred tax liabilities due to the U.S. federal corporate tax rate reduction, and included these amounts in its consolidated financial statements for the year ended December 31, 2017. Beginning in 2018, the Tax Act also includes a global intangible low-taxed income ("GILTI") provision, which as currently interpreted by the Company, requires a tax on foreign earnings in excess of a deemed return on tangible assets of foreign subsidiaries. The Company has elected an accounting policy to account for GILTI as a period cost if incurred, rather than recognizing deferred taxes for temporary basis differences expected to reverse as GILTI. Other provisions of the Tax Act that impact future tax years continue to be assessed.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In 2017, the Company recorded provisional income tax charges as a result of the Tax Act. Due to the timing of the Tax Act’s enactment and the complexity of its provisions, the Company has not completed its accounting for the impact of the Tax Act. The Company will analyze guidance and technical interpretations of the provisions of the Tax Act, as well as refine, analyze and update the underlying data, computations and assumptions used to prepare these provisional amounts. The Company will complete its accounting in 2018 once the Company has obtained, prepared, and fully analyzed all the necessary information. We will record any necessary adjustments in the period in which such adjustments are identified.

Refer to Note 4 of the Notes to the Consolidated Financial Statements for further discussion on the Tax Act.

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, 2017, as well as an estimate of the timing in which such obligations are expected to be satisfied.

		Payment Due By Period
Contractual Obligations					Less than			1-3			3-5			More than
(dollars in millions)		Total			1 year			years			years			5 years
Debt (1)		$	3,555.5		$	1.1		$	1,151.7		$	2,051.4		$	351.3
Interest related to senior notes (1)			252.4			70.9			100.6			64.1			16.8
Operating leases			161.2			53.2			61.0			25.7			21.3
Purchase obligations (2)			345.6			286.9			56.2			2.4			0.1
Accrued pension and postretirement benefit obligations (3)			69.0			9.1			14.7			15.4			29.8
Transition tax (Tax Act) (4)			185.8			14.9			29.7			29.7			111.5
Total (5)		$	4,569.5		$	436.1		$	1,413.9		$	2,188.7		$	530.8

	(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, combined, in 2017 were approximately $15.2. 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)		Purchase obligations relate primarily to open purchase orders for goods and services, including but not limited to, raw materials and components to be used in production.

	(3)		Included in this table are estimated benefit payments expected to be made under the Company’s unfunded pension and postretirement benefit plans and the anticipated minimum required contributions under the Company’s funded pension plans. The Company also maintains several funded pension 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 2017. However, the Company did make a voluntary contribution to the U.S. Plans of approximately $16.5 in 2017, and in January 2018, the Company also made voluntary contributions of approximately $80.0 to substantially fund the U.S. Plans, which is excluded from the above table. It is not possible to reasonably estimate expected required contributions in the above table after 2018 since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets.

	(4)		As a result of the enactment of the Tax Act in December 2017, the Company recorded a provisional tax charge on the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries for the year ended December 31, 2017. This tax charge, which is net of applicable tax credits and deductions and included in the table above, represents our current provisional charge based on certain assumptions made upon the Company’s current interpretation of the Tax Act. In 2018, the Company will analyze guidance and technical interpretations of the provisions of the Tax Act, as well as refine, analyze and update the underlying data, computations and assumptions used to prepare this provisional amount. As permitted under the Tax Act, this income tax charge will be paid over the next eight years starting in 2018. The table above excludes the provisional charge recorded in 2017 related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, since that portion of the charge is not due until the Company repatriates such earnings.

	(5)		As of December 31, 2017, the Company has recorded liabilities of approximately $162.8 related to unrecognized tax benefits. These liabilities have been excluded from the above table due to the high degree of uncertainty regarding the timing of potential future cash flows; it is difficult to make a reasonably reliable estimate of the amount and period in which all of these liabilities might be paid.