AMPHENOL CORP /DE/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 1-10879

AMPHENOL CORPORATION
(Exact name of registrant as specified in its Charter)

Delaware (State or other jurisdiction of incorporation or organization)		22-2785165 (I.R.S. Employer Identification No.)
358 Hall Avenue Wallingford, Connecticut 06492 203-265-8900 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)

Indicate by check mark whether the Registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

As of June 30, 2003, the total number of shares outstanding of Class A Common Stock was 42,628,626.

AMPHENOL CORPORATION

Index to Quarterly Report
on Form 10-Q

			Page
Part I		Financial Information
	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheet June 30, 2003 and December 31, 2002	3
		Condensed Consolidated Statement of Income three and six months ended June 30, 2003 and 2002	4
		Condensed Consolidated Statement of Changes in Shareholders' Equity six months ended June 30, 2003	5
		Condensed Consolidated Statement of Changes in Shareholders' Equity six months ended June 30, 2002	6
		Condensed Consolidated Statement of Cash Flow six months ended June 30, 2003 and 2002	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
	Item 4.	Controls and Procedures	17
Part II		Other Information
	Item 1.	Legal Proceedings	18
	Item 2.	Changes in Securities	18
	Item 3.	Defaults upon Senior Securities	18
	Item 4.	Submission of Matters to a Vote of Security-Holders	18
	Item 5.	Other Information	18
	Item 6.	Exhibits and Reports on Form 8-K	18
Signatures			20
Exhibit Index			21

Part I. Financial Information

Item 1. Financial Statements

AMPHENOL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET

(dollars in thousands)

			June 30, 2003			December 31, 2002
			(Unaudited)
ASSETS
Current Assets:
	Cash and short-term cash investments		$	22,328		$	20,659
	Accounts receivable, less allowance for doubtful accounts of $8,861 and $8,812, respectively			158,817			131,252
	Inventories			211,535			205,643
	Prepaid expenses and other assets			34,865			31,610

Total current assets				427,545			389,164

Land and depreciable assets, less accumulated depreciation of $314,587 and $285,427, respectively				171,260			160,690
Deferred debt issuance costs				7,769			4,382
Goodwill				501,414			486,841
Deferred taxes and other assets				39,674			37,831

			$	1,147,662		$	1,078,908

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Accounts payable		$	94,426		$	88,533
	Accrued interest			3,199			4,957
	Accrued salaries, wages and employee benefits			30,370			24,568
	Other accrued expenses			47,858			39,493
	Current portion of long-term debt			10,255			78,363

Total current liabilities				186,108			235,914

Long-term debt				624,663			565,885
Accrued pension and post employment benefit obligations				107,184			102,418
Deferred taxes and other liabilities				10,801			7,709
Shareholders' Equity:
	Common Stock			43			43
	Additional paid-in capital (deficit)			(272,954	)		(274,282	)
	Accumulated earnings			565,232			522,440
	Accumulated other comprehensive loss			(73,415	)		(81,219	)

		Total shareholders' equity		218,906			166,982

			$	1,147,662		$	1,078,908

See accompanying notes to condensed consolidated financial statements.

AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

(dollars in thousands, except per share data)

		Three months ended June 30,						Six months ended June 30,
		2003			2002			2003			2002
Net sales		$	304,893		$	270,865		$	582,667		$	526,841
Costs and expenses:
	Cost of sales, excluding depreciation and amortization		203,200			178,485			385,853			349,220
	Depreciation and amortization expense		9,566			8,542			18,374			16,940
	Selling, general and administrative expense		42,868			38,806			84,010			75,376

Operating income			49,259			45,032			94,430			85,305
Interest expense			(7,694	)		(12,858	)		(15,818	)		(25,696	)
Other expenses, net			(1,685	)		(1,635	)		(3,409	)		(2,821	)
Expense for early extinguishment of debt			(10,367	)					(10,367	)

Income before income taxes			29,513			30,539			64,836			56,788
Provision for income taxes			(10,034	)		(10,536	)		(22,044	)		(19,592	)

Net income		$	19,479		$	20,003		$	42,792		$	37,196

Net income per common share—Basic		$	.46		$	.47		$	1.00		$	.88

Average common shares outstanding—Basic			42,624,274			42,394,252			42,598,619			42,348,057

Net income per common share—Diluted		$	.45		$	.46		$	.98		$	.86

Average common shares outstanding—Diluted			43,672,305			43,454,235			43,592,119			43,448,329

See accompanying notes to condensed consolidated financial statements.

AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
for the six months ended June 30, 2003
(Unaudited)

(dollars in thousands)

			Common Stock		Additional Paid-in Deficit			Comprehensive Income			Accumulated Earnings		Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Beginning balance at December 31, 2002			$	43	$	(274,282	)				$	522,440	$	(81,219	)	$	166,982
Comprehensive income:
	Net income							[$	42,792	]		42,792					42,792

		Other comprehensive income, net of tax:
		Translation adjustments							10,556					10,556			10,556
		Revaluation of interest rate derivatives							(2,752	)				(2,752	)		(2,752	)

		Other comprehensive income							7,804

Comprehensive income								[$	50,596	]

Exercise of stock options, including tax benefit						1,208											1,208
Other adjustments						120											120

Ending balance at June 30, 2003			$	43	$	(272,954	)				$	565,232	$	(73,415	)	$	218,906

See accompanying notes to condensed consolidated financial statements.

AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
for the six months ended June 30, 2002
(Unaudited)

(dollars in thousands)

			Common Stock		Additional Paid-in Deficit			Comprehensive Income			Accumulated Earnings		Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Beginning balance at December 31, 2001			$	42	$	(280,224	)				$	442,096	$	(57,981	)	$	103,933
Comprehensive income:
	Net income							[$	37,196	]		37,196					37,196

	Other comprehensive income, net of tax:
		Translation adjustments							8,233					8,233			8,233
		Revaluation of interest rate derivatives							4,530					4,530			4,530

		Other comprehensive income							12,763

Comprehensive income								[$	49,959	]

Exercise of stock options, including tax benefit				1		4,522											4,523
Other adjustments						61											61

Ending balance at June 30, 2002			$	43	$	(275,641	)				$	479,292	$	(45,218	)	$	158,476

See accompanying notes to condensed consolidated financial statements.

AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)

(dollars in thousands)

				Six Months Ended June 30,
				2003			2002
Net income				$	42,792		$	37,196
Adjustments for cash from operations:
	Depreciation and amortization				18,374			16,940
	Amortization of deferred debt issuance costs				718			704
	Expense for early extinguishment of debt				10,367			—
	Net change in non-cash components of working capital				(3,521	)		20,118
	Other long term assets and liabilities				1,353			(1,135	)

Cash flow provided by operations					70,083			73,823

Cash flow from investing activities:
	Capital additions, net				(12,862	)		(7,948	)
	Investment in acquisitions				(29,766	)		(11,939	)

			Cash flow used by investing activities		(42,628	)		(19,887	)

Cash flow from financing activities:
	Net change in borrowings under revolving credit facilities				3,742			2,873
	Decrease in borrowings under Bank Agreement				(61,543	)		(58,205	)
	Retirement of debt: old Bank Agreement				(439,500	)
		senior subordinated notes			(148,740	)
		fees and expenses related to refinancing			(8,453	)
	Borrowings under new Bank Agreement				625,000
	Net change in receivables sold				2,500			(10,300	)
	Proceeds from exercise of stock options				1,208			2,959

			Cash used by financing activities		(25,786	)		(62,673	)

Net change in cash and short-term cash investments					1,669			(8,737	)
Cash and short-term cash investments balance, beginning of period					20,659			27,975

Cash and short-term cash investments balance, end of period				$	22,328		$	19,238

Cash paid during the period for:
	Interest			$	17,627		$	27,109
	Income taxes paid, net of refunds				17,671			13,590

See accompanying notes to condensed consolidated financial statements.

AMPHENOL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Note 1—Principles of Consolidation and Interim Financial Statements

The condensed consolidated balance sheet as of June 30, 2003 and December 31, 2002, and the related consolidated statements of income for the three and six months ended June 30, 2003 and 2002 and of changes in shareholders' equity and of cash flow for the six months ended June 30, 2003 and 2002 include the accounts of Amphenol Corporation (the "Company") and its subsidiaries. The interim financial statements included herein are unaudited. In the opinion of management all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such interim financial statements have been included. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes included in the Company's 2002 Annual Report on Form 10-K/A.

Note 2—Refinancing and New Credit Agreement

In May 2003, the Company completed a refinancing of its senior credit facilities and redeemed all of its outstanding Senior Subordinated Notes ("Notes"). The new credit facilities consist of: (1) a $125,000 five year revolving credit facility, (2) a $125,000 Tranche A loan which will amortize over the five year period through May 2008, and (3) a $500 million Tranche B loan with $5 million per year amortization through 2009 and a final maturity in 2010. In connection with the refinancing, the Company incurred one-time expenses for the early extinguishment of debt of $10,367 (less tax effects of $3,525) or $.16 per share after tax. Such one-time expenses include the call premium on the Notes, write-off of unamortized deferred debt issuance costs and other related costs.

In conjunction with entering into the new Bank Agreement the Company entered into interest rate swap agreements that fixed the Company's LIBOR interest rate on $250 million and $150 million of floating rate bank debt at 2.44% and 1.24%, expiring in 2006 and 2004, respectively.

Note 3—Inventories

Inventories consist of:

	June 30, 2003		December 31, 2002
Raw materials and supplies	$	43,693	$	38,133
Work in process		113,257		111,337
Finished goods		54,585		56,173

	$	211,535	$	205,643

Note 4—Reportable Business Segments

The Company has two reportable business segments: interconnect products and assemblies and cable products. The interconnect products and assemblies segment produces connectors and connector assemblies primarily for the communications, aerospace, industrial and automotive markets. The cable products segment produces coaxial and flat ribbon cable and related products primarily for communication markets, including cable television. The Company evaluates the performance of business units on, among other things, profit or loss from operations before interest expense, headquarters' expense allocations, income taxes and nonrecurring gains and losses. The Company's reportable segments are an aggregation of business units that have similar production processes and products.

The segment results for the three months ended June 30, 2003 and 2002 are as follows:

		Interconnect products and assemblies				Cable products				Total
		2003		2002		2003		2002		2003		2002
Net sales
	—external	$	265,449	$	225,756	$	39,444	$	45,109	$	304,893	$	270,865
	—intersegment		495		478		3,318		1,907		3,813		2,385
Segment operating income			48,497		38,088		4,296		7,840		52,793		45,928

The segment results for the six months ended June 30, 2003 and 2002 are as follows:

		Interconnect products and assemblies				Cable products				Total
		2003		2002		2003		2002		2003		2002
Net sales
	—external	$	507,994	$	436,089	$	74,673	$	90,752	$	582,667	$	526,841
	—intersegment		878		740		6,675		4,162		7,553		4,902
Segment operating income			90,807		71,580		9,706		15,999		100,513		87,579

Reconciliation of segment operating income to consolidated income before taxes for the second quarter and six months ended June 30, 2003 and 2002:

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
Segment operating income	$	52,793		$	45,928		$	100,513		$	87,579
Interest expense		(7,694	)		(12,858	)		(15,818	)