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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1998
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ______________
Commission file number 1-10879
AMPHENOL CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 22-2785165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, $.001 par value New York Stock Exchange, Inc.
(Title of each Class) (Name of each Exchange
on which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all 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 |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of Amphenol Corporation Common Stock, $.001 Par
Value, held by non-affiliates was approximately $158 million based on the
reported last sale price of such stock on the New York Stock Exchange on
February 26, 1999.
As of February 26, 1999 the total number of shares outstanding of Common Stock
was 17,862,328.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement which is expected to be
filed within 120 days following the end of the fiscal year covered by this
report, are incorporated by reference into Part III hereof.
1
INDEX Page
PART I 3
Item 1. Business 3
General 3
Product Development 4
Business Segments 4
International Operations 6
Customers 6
Manufacturing 7
Research and Development 7
Trademarks and Patents 8
Competition 8
Backlog 8
Employees 8
Cautionary Statements for Purposes of Forward Looking
Information 9
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security-Holders 12
Item 4.1 Executive Officers 12
PART II 13
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Report of Management 19
Independent Auditors' Reports 19
Consolidated Statement of Income 20
Consolidated Balance Sheet 21
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) 22
Consolidated Statement of Cash Flow 23
Notes to Consolidated Financial Statements 24
Item 9. Changes in and Disagreements with Independent Accountants on
Accounting and Financial Disclosure 37
PART III 37
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV 38
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 38
Signature of the Registrant 42
Signatures of the Directors 42
2
PART I
Item 1. Business
General
Amphenol Corporation ("Amphenol" or the "Company") is a leading designer,
manufacturer and marketer of electrical, electronic and fiber optic connectors,
interconnect systems and coaxial and flat-ribbon cable. The primary end markets
for the Company's products are telephone, wireless and data communications
systems; cable television systems; commercial and military aerospace
electronics; automotive and mass transportation applications; and industrial
factory automation equipment. For the year ended December 31, 1998,
approximately 53% of the Company's net sales were to the worldwide
communications market (including 23% for the cable television market), 25% were
for commercial and military aerospace and other military electronics
applications and 22% were for industrial, transportation and other applications.
The Company focuses on optimizing its mix of higher margin application-specific
products in its product offerings and maintaining continuing programs of
productivity improvement. As a result of these initiatives, the Company's
operating profit margin has increased from 13.5% in fiscal year 1993 to 16.3% in
fiscal year 1998.
The Company designs and manufactures connectors and interconnect systems
which are used primarily to conduct electrical and optical signals for a wide
range of sophisticated electronic applications. The Company believes, based
primarily on published market research, that it is one of the largest connector
manufacturers in the world and the leading supplier of high performance
environmental connectors that require superior performance and reliability under
conditions of stress and in hostile environments. Such conditions are frequently
encountered in commercial and military aerospace applications and other
demanding industrial applications such as natural resource exploration, medical
instrumentation and off-road construction. In addition, the Company has
developed a broad range of interconnect products to serve the rapidly growing
markets of wireless communications including cellular and personal communication
networks and fiber optic networks; electronic commerce including smart cards and
electronic purse applications; and automotive safety products including airbags,
pretensioner seatbelts and anti-lock braking systems. The Company is also one of
the leaders in developing interconnect products for factory automation, machine
tools and for mass transportation applications. The Company believes that the
worldwide industry for interconnect products and systems is highly fragmented
with over 2,000 producers of connectors worldwide, of which the 10 largest
accounted for a combined market share of approximately 32% in 1998. Industry
analysts estimate that the total sales for the industry were approximately $34
billion in 1998.
The Company's Times Fiber subsidiary is the world's second largest
producer of coaxial cable for the cable television market. The Company believes
that Times Fiber is one of the lowest cost producers of coaxial cable for the
cable television market, and that it is one of the technological leaders in
increasing the bandwidth of coaxial cable products. The Company's coaxial cable
and connector products are used in cable television systems including full
service cable television/telecommunication systems being installed by cable
operators and telecommunication companies offering video, voice and data
services. The Company also is a major supplier of coaxial cable to the
developing international cable television markets. In addition, the Company has
developed coaxial cable products, in conjunction with connector products, used
in the infrastructure for wireless communication systems.
The Company is a global manufacturer employing advanced manufacturing
processes. The Company's products are manufactured and assembled at facilities
in the United States, Canada, Mexico, Brazil, Germany, France, the United
Kingdom, Sweden, the Czech Republic, Estonia, Taiwan, Japan, India, the People's
Republic of China, Korea and Australia. The Company's connector products are
sold through its global sales force and
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independent manufacturers' representatives to thousands of original equipment
manufacturers ("OEMs") in 52 countries throughout the world as well as through a
global network of electronics distributors. The Company's coaxial cable products
are primarily sold to cable television operators and to telecommunication
companies who have entered the broadband communications market. In 1998,
approximately 60% of the Company's net sales were in North America, 27% were in
Europe and 13% were in Asia and other countries.
Product Development
The Company's product development strategy is to offer a broad range of
products to meet the specific interconnect requirements of its customers in its
target markets. The Company's market focus is primarily in interconnect products
for the: (1) wireless, telecom and data communications market; (2) broadband
communications, primarily cable television and the developing markets for full
service television, telephone and data communication broadband networks; (3)
commercial and military aerospace markets; (4) industrial markets, primarily
factory automation and mass transportation; and (5) automotive electronics,
primarily automotive safety devices such as airbags, pretensioner seatbelts and
anti-lock braking systems. The Company implements its product development
strategy through product design teams and collaboration arrangements with
customers which result in obtaining approved vendor status for the customer's
new products and programs. The Company further seeks to have its products become
widely accepted within the industry for similar applications and products
manufactured by other potential customers, thereby providing additional sources
of future revenue. The development of application-specific products has
decreased the significance of standard products which generally experience
greater pricing pressure. In addition to product design teams and customer
collaboration arrangements, the Company uses key account managers to manage
customer relationships on a global basis such that the Company can bring to bear
its total resources to meet the worldwide needs of its multinational customers.
The Company is also focused on making strategic acquisitions in certain markets
to further broaden and enhance its product offerings and expand its global
capabilities.
Business Segments
The following table sets forth the dollar amounts of the Company's net
sales for its business segments. For a discussion of factors affecting changes
in sales by business segment, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
1998 1997 1996
- --------------------------------------------------------------------------------
(dollars in thousands)
Net sales by business segment:
Interconnect products and
assemblies $718,109 $679,887 $585,033
Cable products 200,768 204,461 191,188
-------- -------- --------
$918,877 $884,348 $776,221
======== ======== ========
Net sales by geographic area:
United States operations $499,891 $462,349 $397,023
International operations (1) 418,986 421,999 379,198
-------- -------- --------
$918,877 $884,348 $776,221
======== ======== ========
- ----------
(1) Includes international coaxial cable sales, which are primarily export
sales.
4
Interconnect Products and Assemblies. The Company produces a broad range
of interconnect products and assemblies primarily for voice, video and data
communication systems, commercial and military aerospace systems, automotive and
mass transportation applications, and industrial and factory automation
equipment. Interconnect products include connectors, which when attached to an
electronic or fiber optic cable, a printed circuit board or other device
facilitate electronic or fiber optic transmission. Interconnect assemblies
generally consist of a system of cable and connectors for linking electronic and
fiber optic equipment. The Company designs and produces a broad range of
connector products used in communication applications. Examples include smart
card acceptor devices used in mobile GSM telephones, cable modems and other
applications to facilitate reading data from smart cards; fiber optic couplers
and connectors used in fiber optic transmission; input/output connectors used
for linking personal computers and peripheral equipment; and sculptured flexible
circuits used for integrating printed circuit boards in communication
applications. The Company also designs and produces a broad range of radio
frequency connector products used in telecommunications, computer and office
equipment, instrumentation equipment and local area networks. The Company's
radio frequency connectors are used in base stations, hand held sets and other
components of cellular and personal communications networks. The Company has
also developed a broad line of radio frequency connectors for coaxial cable for
full service cable television/telecommunication networks. The Company believes,
based primarily on published market research, that it is the largest supplier of
circular, military-specification connectors. Such connectors require superior
performance and reliability under conditions of stress and in hostile
environments. High performance environmental connectors are generally used to
interconnect electronic and fiber optic systems in sophisticated aerospace,
military, commercial and industrial equipment. These applications present
demanding technological requirements in that the connectors can be subject to
rapid and severe temperature changes, vibration, humidity and nuclear radiation.
Frequent applications of these connectors include aircraft, guided missiles,
radar, military vehicles, equipment for spacecraft, energy, medical
instrumentation and geophysical applications and off-road construction
equipment. The Company also designs and produces industrial interconnect
products used in a variety of applications such as factory automation equipment,
mass transportation applications including railroads and marine transportation;
and automotive safety products including interconnect devices and systems used
in automotive airbags, pretensioner seatbelts and anti-lock braking systems. The
Company also designs and produces highly-engineered cable assemblies. Such
assemblies are specially designed by the Company in conjunction with OEM
customers for specific applications, primarily for computer, wired and wireless
communication systems and office equipment applications. The cable assemblies
utilize the Company's connector and cable products as well as components
purchased from others.
Cable Products. The Company designs, manufactures and markets coaxial
cable primarily for use in the cable television industry. The Company
manufactures two primary types of coaxial cable: semi-flexible, which has an
aluminum tubular shield, and flexible, which has one or more braided metallic
shields. Semi-flexible coaxial cable is used in the trunk and feeder
distribution portion of cable television systems, and flexible cable (also known
as drop cable) is used primarily for hookups from the feeder cable to the cable
television subscriber's residence. Flexible cable is also used in other
communications applications.
The rapid developments in fiber optic technologies, digital compression
(which allows several channels to be transmitted within the same bandwidth that
a single analog channel currently requires) and other communication
technologies, including the Company's development of higher capacity coaxial
cable, have resulted in technologies which enable cable television systems to
provide channel capacity in excess of 500 channels. Such expanded channel
capacity, along with other component additions, will permit cable operators to
offer full service networks with a variety of capabilities including near
video-on-demand, pay-per-view special events, home shopping networks,
interactive entertainment and education services, telephone services and
high-speed access to data resources such as the Internet. With respect to
expanded channel capacity systems, cable operators have generally adopted, and
the Company believes that for the foreseeable future will continue to adopt, a
cable system using both fiber optic cable and coaxial cable. Such systems
combine the advantages of fiber optic
5
cable in transmitting clear signals over a long distance without amplification,
with the advantages of coaxial cable in ease of installation, low cost and
compatibility with the receiving components of the customer's communications
devices. The Company believes that while system operators are likely to increase
their use of fiber optic cable for the trunk and feeder portions of the cable
systems, there will be an ongoing need for high capacity coaxial cable for the
local distribution and street-to-the-home portions of the cable system.
U.S. cable system designs are increasingly being employed in international
markets where cable television penetration is low. For example, it is estimated
that in 1998 only 31% of the television households in Europe subscribed to some
form of multichannel television service as compared to an estimated subscription
rate of 66% in the U.S. The estimated subscription rates in the Asian and Latin
American markets are even lower at approximately 17% and 14%, respectively. In
terms of television households, it is estimated that there are 256 million
television households in Europe, 453 million in Asia and 96 million in Latin
America. This compares to an estimated 96 million television households in the
U.S. In 1998, the Company had sales of coaxial cable in approximately 50
countries, and the Company believes the development of cable television systems
in international markets presents a significant opportunity to increase sales of
its coaxial cable products.
The Company is also a leading producer of flat-ribbon cable, a cable made
of wires assembled side by side such that the finished cable is flat.
Flat-ribbon cable is used to connect internal components in systems with space
and component configuration limitations. The product is used in computer and
office equipment components as well as in a variety of telecommunications
applications.
International Operations
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. Approximately 46% of the
Company's sales for the year ended December 31, 1998 were outside the United
States. Approximately 60% of such international sales were in Europe. The
Company has manufacturing and assembly facilities in the United Kingdom,
Germany, France, Sweden, the Czech Republic, Estonia and sales offices in most
European markets. The European operations generally have strong positions in
their respective local markets. Local operations coordinate product design and
manufacturing responsibility with the Company's other operations around the
world. The balance of the Company's international activities are located
primarily in Brazil, Canada, Mexico, Australia and the Far East, which includes
manufacturing facilities in Taiwan, India, Japan, Korea, and the People's
Republic of China. The Company's manufacturing and assembly facilities generally
serve the respective local markets. In addition, the Company has low cost
manufacturing and assembly sources in Scotland, Estonia, the Czech Republic,
Mexico and the People's Republic of China to serve regional and world markets.
Customers
The Company's products are used in a wide variety of applications by
numerous customers, none of whom accounted for more than 5% of the Company's
sales for 1998 (except for sales under contract with the U.S. Government and its
subcontractors, which accounted for 8% of 1998 sales). The Company's
participation across a broad spectrum of government programs is such that the
Company believes that no one government program accounted for more than 2% of
1998 net sales. The Company's products are sold both directly to OEMs, cable
system operators, telecommunication companies and through distributors. There
has been a trend on the part of OEM customers to consolidate their lists of
qualified suppliers to companies that have a global presence, can meet quality
and delivery standards, have a broad product portfolio and design capability,
and have competitive prices. The Company has focused its global resources to
position itself to compete effectively in this environment. The Company has
concentrated its efforts on service and productivity improvements including
advanced computer
6
aided design and manufacturing systems, statistical process controls and
just-in-time inventory programs to increase product quality and shorten product
delivery schedules. The Company's strategy is to provide a broad selection of
products in the areas in which it competes. The Company has achieved a preferred
supplier designation from many of its OEM customers.
The Company's sales to distributors represented approximately 27% of the
Company's 1998 sales. The Company's recognized brand names including "Amphenol,"
"Times Fiber," "Pyle-National," "Matrix," "Spectra-Strip," "Sine," "Tuchel,"
"Kai Jack" and "Socapex," together with the Company's strong connector design-in
position (products that are specified in the plans and qualified by the OEM),
enhance its ability to reach the secondary market through its network of
distributors. The Company believes that its distributor network represents a
competitive advantage.
Manufacturing
The Company employs advanced manufacturing processes including molding,
stamping, plating, turning, extruding, die casting and assembly operations as
well as proprietary process technology for flat-ribbon and coaxial cable
production. The Company's manufacturing facilities are generally vertically
integrated operations from the initial design stage through final design and
manufacturing. Outsourcing of certain fabrication processes is used when
cost-effective. Substantially all of the Company's manufacturing facilities are
certified to the ISO9000 series of quality standards.
The Company employs a global manufacturing strategy to lower its
production costs and to improve service to customers. The Company sources its
products on a worldwide basis with manufacturing and assembly operations in
North and South America, Europe and Asia. To better serve high volume OEM
customers, the Company has established just-in-time facilities near major
customers.
The Company's policy is to maintain strong cost controls in its
manufacturing and assembly operations. The Company has undertaken programs to
rationalize its production facilities, reduce expenses and maximize the return
on capital expenditures. The programs to improve productivity are ongoing.
The Company purchases a wide variety of raw materials for the manufacture
of its products, including precious metals such as gold and silver used in
plating; brass, copper, aluminum and steel used for cable, contacts and
connector shells; and plastic materials used for cable and connector bodies and
inserts. Such raw materials are generally available throughout the world and are
purchased locally from a variety of suppliers. The Company is not dependent upon
any one source for raw materials, or if one source is used the Company attempts
to protect itself through long-term supply agreements.
Research and Development
The Company's research, development and engineering expenditures for the
creation and application of new and improved products and processes were $17.7
million, $15.3 million and $14.6 million (excluding customer sponsored programs
representing expenditures of $0.5 million, $0.2 million and $0.9 million) for
1998, 1997 and 1996, respectively. The Company's research and development
activities focus on selected product areas and are performed by individual
operating divisions. Generally, the operating divisions work closely with OEM
customers to develop highly-engineered products that meet customer needs. The
Company continues to focus its research and development efforts primarily on
those product areas that it believes have the potential for broad market
applications and significant sales within a one-to-three year period.
Trademarks and Patents
7
The Company owns a number of active patents worldwide. While the Company
considers its patents to be valuable assets, the Company does not believe that
its competitive position is dependent on patent protection or that its
operations are dependent on any individual patent. The Company regards its
trademarks "Amphenol," "Times Fiber," "Pyle-National," "Matrix,"
"Spectra-Strip," "Sine," "Tuchel," "Kai Jack," and "Socapex" to be of value in
its businesses. The Company has exclusive rights in all its major markets to use
these registered trademarks.
Competition
The Company encounters competition in substantially all areas of its
business. The Company competes primarily on the basis of product quality, price,
engineering, customer service and delivery time. Competitors include large,
diversified companies, some of which have substantially greater assets and
financial resources than the Company, as well as medium to small companies. In
the area of coaxial cable for cable television, the Company believes that it and
CommScope, Inc. are the primary providers of such cable; however, CommScope is
larger than the Company in this market. In addition, the Company faces
competition from other companies that have concentrated their efforts in one or
more areas of the coaxial cable market.
Backlog
The Company estimates that its backlog of unfilled orders was $221.5
million and $209.2 million at December 31, 1998 and 1997, respectively. Orders
typically fluctuate from quarter to quarter based on customer demands and
general business conditions. Unfilled orders may be cancelled prior to shipment
of goods; however, such cancellations historically have not been material. It is
expected that all or a substantial portion of the backlog will be filled within
the next 12 months. Significant elements of the Company's business, such as
sales to the cable television industry, distributors, the computer industry, and
other commercial customers, generally have short lead times.
Therefore, backlog may not be indicative of future demand.
Employees
As of December 31, 1998, the Company had approximately 7,600 full-time
employees worldwide. Of these employees, approximately 5,400 were hourly
employees, of which approximately 2,700 were represented by labor unions, and
the remainder were salaried. The Company had a one week strike in October 1995
at its Sidney, New York facility relating to the renewal of the labor contract
at that facility with the International Association of Machinists and Aerospace
Workers. The Company has not had any other work stoppages in the past ten years.
In 1997, the United Steelworkers International Union, AFL-CIO established a
union, affecting approximately 500 employees, at the Company's plant in Chatham,
Virginia, the Company's primary plant for the production of coaxial cable. The
Company believes that it has a good relationship with its unionized and
non-unionized employees.
8
Cautionary Statements for Purposes of Forward Looking Information
Statements made by the Company in written or oral form to various persons,
including statements made in filings with the SEC, that are not strictly
historical facts are "forward looking" statements. Such statements should be
considered as subject to uncertainties that exist in the Company's operations
and business environment. The following includes some, but not all, of the
factors or uncertainties that could cause the Company to fail to conform with
expectations and predictions:
- - A global economic slowdown in any one, or all, of the Company's market
segments.
- - The effects of extreme changes in monetary and fiscal policies in the U.S.
and abroad including extreme currency fluctuations and unforeseen
inflationary pressures.
- - Drastic and unforeseen price pressure on the Company's products or
significant cost increases that cannot be recovered through price
increases or productivity improvements.
- - Increased difficulties in obtaining a consistent supply of basic materials
like steel, aluminum, copper, gold or plastic resins at stable pricing
levels.
- - Unpredictable difficulties or delays in the development of new product
programs.
- - Significant changes in interest rates or in the availability of financing
for the Company or certain of its customers.
- - Rapid escalation of the cost of regulatory compliance and litigation.
- - Unexpected government policies and regulations affecting the Company or
its significant customers.
- - Unforeseen intergovernmental conflicts or actions, including but not
limited to armed conflict and trade wars.
- - Difficulties and unanticipated expense of assimilating newly-acquired
businesses.
- - Any difficulties in obtaining or retaining the management and other human
resource competencies that the Company needs to achieve its business
objectives.
- - The risks associated with any technological shifts away from the Company's
technologies and core competencies. For example, a technological shift
away from the use of coaxial cable in cable television/ telecommunication
systems could have a substantial impact on the Company's coaxial cable
business.
- - Unforeseen interruptions to the Company's business with its largest
customers, distributors and suppliers resulting from, but not limited to,
strikes, financial instabilities, computer malfunctions or inventory
excesses.
9
Item 2. Properties
The Company's fixed assets include certain plants and warehouses and a
substantial quantity of machinery and equipment, most of which is general
purpose machinery and equipment using tools and fixtures and in many instances
having automatic control features and special adaptations. The Company's plants,
warehouses, machinery and equipment are in good operating condition, are well
maintained, and substantially all of its facilities are in regular use. The
Company considers the present level of fixed assets as of December
31, 1998, suitable and adequate for operations in the current business
environment. At December 31, 1998, the Company operated a total of 46 plants and
warehouses of which (a) the locations in the U.S. had approximately 1.8 million
square feet, of which .8 million square feet were leased; and (b) the locations
outside the U.S. had approximately 1.2 million square feet, of which .5 million
square feet were leased.
The Company believes that its facilities are suitable and adequate for the
business conducted therein, are being appropriately utilized consistent with
experience and have sufficient production capacity for their present intended
purposes. Utilization of the facilities varies based on demand for the products.
The Company continuously reviews its anticipated requirements for facilities
and, based on that review, may from time to time acquire or lease additional
facilities and/or dispose of existing facilities.
Item 3. Legal Proceedings
The Company and its subsidiaries have been named as defendants in several
legal actions in which various amounts are claimed arising from normal business
activities. Although the amount of any ultimate liability with respect to such
matters cannot be precisely determined, in the opinion of management, such
matters are not expected to have a material effect on the Company's financial
condition or results of operations.
Certain operations of the Company are subject to federal, state and local
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 all applicable environmental laws and regulations and that the
costs of continuing compliance will not have a material effect on the Company's
financial condition or results of operations.
Subsequent to the acquisition of Amphenol from Allied Signal Corporation
("Allied") in 1987, Amphenol and Allied have been named jointly and severally
liable as potentially responsible parties in relation to several environmental
cleanup sites. Amphenol and Allied have jointly consented to perform certain
investigations and remedial and monitoring activities at two sites and they have
been jointly ordered to perform work at another site. The responsibility for
costs incurred relating to these sites is apportioned between Amphenol and
Allied based on an agreement entered into in connection with the acquisition.
For sites covered by this agreement, to the extent that conditions or
circumstances occurred or existed at the time of or prior to the acquisition,
Allied is currently obligated to pay 80% of the costs up to $30 million and 100%
of the costs in excess of $30 million. At December 31, 1998, approximately $15
million of total costs have been incurred applicable to this agreement. Allied
representatives are presently working closely with the Company in addressing the
most significant potential environmental liabilities including the Sidney Center
landfill and the Richardson Hill landfill projects, as described below.
Owners and occupiers of sites containing hazardous substances, as well as
generators of hazardous substances, are subject to broad liability under various
federal and state environmental laws and regulations, including expenditures for
cleanup costs and damages arising out of past disposal activities. Such
liability in many
10
cases may be imposed regardless of fault or the legality of the original
disposal activity. The Company is currently performing investigative and
monitoring activities at its manufacturing site in Sidney, New York. In
addition, the Company is currently voluntarily performing monitoring,
investigation, design and cleanup activities at two local, public off-site
disposal sites previously utilized by the Sidney facility and others. The
Company is also performing proposed remedial design activities and is currently
negotiating with respect to a third site. The Company and Allied have entered
into an administrative consent order with the United States Environmental
Protection Agency (the "EPA") and are presently determining necessary and
appropriate remedial measures for one such site (the "Richardson Hill" landfill)
used by Amphenol and other companies, which has been designated a "Superfund"
site on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980. With respect to the second
site, (the "Route 8" landfill), used exclusively by Amphenol, the Company
initiated a remediation program pursuant to a Consent Order with the New York
Department of Environmental Protection and is continuing to monitor the results
of those remediation efforts. In December 1995, the Company and Allied received
a letter from the EPA demanding that the Company and Allied accept
responsibility for the investigation and cleanup of the Sidney Center landfill,
another Superfund Site. The Sidney Center landfill was a municipal landfill site
utilized by the Company's Sidney facility and other local towns and businesses.
The Company has acknowledged that it sent general plant refuse but no hazardous
waste to the Sidney Center landfill site. In 1996, the Company and Allied
received a unilateral order from the EPA directing the Company and Allied to
perform certain investigation, design and cleanup activities at the Sidney
Center landfill site. The Company and Allied responded to the unilateral order
by agreeing to undertake certain remedial design activities. In 1997, the EPA
filed a lawsuit against the Company and Allied seeking to recover $2.7 million
for past costs expended by the EPA in connection with activities at the Sidney
Center landfill site and seeking to affix liability upon the Company and Allied
for all additional costs to be incurred in connection with all further
investigations, design and cleanup activities at the site. The Company joined
four local municipalities as co-defendants in the lawsuit. The EPA and the four
municipalities have entered into a proposed settlement agreement which is
subject to court approval. The Company and Allied are contesting the proposed
settlement agreement as being unfair and inequitable. A similar settlement
proposal has not been offered to the Company and Allied. The Company and Allied
intend to continue to vigorously defend the lawsuit although remedial design
work for the Sidney Center landfill site has continued pursuant to the 1996
unilateral order. The Company also is engaged in remediating or monitoring
environmental conditions at several of its other manufacturing facilities and
has been named as a potentially responsible party for cleanup costs at several
other off-site disposal sites. During 1998, the Company spent approximately $.2
million, net of indemnification payments received from Allied, in connection
with investigating, remediating and monitoring environmental conditions at these
facilities and sites. Amphenol expects such expenditures, net of expected
indemnification payments from Allied, to be less than $.6 million in 1999.
Since 1987, the Company has not been identified nor has it been named as a
potentially responsible party with respect to any other significant on-site or
off-site hazardous waste matters. In addition, the Company believes that all of
its manufacturing activities and disposal practices since 1987 have been in
material compliance with all applicable environmental laws and regulations.
Nonetheless, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Although the Company is unable to predict with any reasonable certainty
the extent of its ultimate liability with respect to any pending or future
environmental matters, the Company believes, based upon all information
currently known by management about the Company's manufacturing activities,
disposal practices and estimates of liability with respect to all known
environmental matters, that any such liability will not be material to its
financial condition or results of operations.
11
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders was held on May 20, 1998. The following
matters were submitted to and approved by the stockholders: (i) the election of
two directors, Martin H. Loeffler and Michael W. Michelson, each for a three
year term expiring in the year 2001; (ii) ratification of Deloitte & Touche LLP
as independent accountants of the Company and (iii) ratification and approval of
the Amended 1997 Option Plan for Key Employees of Amphenol and Subsidiaries.
Item 4.1 Executive Officers
The following table sets forth the name, age and position with the Company
of each person who was an executive officer of Amphenol as of December 31, 1998.
Officers are elected to serve at the discretion of the Board of Directors in
accordance with the By-Laws of the Company. The By-Laws of the Company provide
that the Board of Directors shall elect the officers of the Company at its first
meeting held after the Annual Meeting of Stockholders of the Company. All
officers of the Company are elected to hold office until their successors are
chosen and qualified, or until their earlier resignation or removal.
Name Age Position
---- --- --------
Martin H. Loeffler 54 Chairman of the Board,
Chief Executive Officer and President
Edward G. Jepsen 55 Executive Vice President
and Chief Financial Officer
Timothy F. Cohane 46 Senior Vice President
Edward C. Wetmore 42 Secretary and General Counsel
Diana G. Reardon 39 Controller and Treasurer
Martin H. Loeffler has been a Director of Amphenol since December 1987 and
Chairman of the Board since May 1997. He has also served as President and Chief
Operating Officer of Amphenol since July 1987. He has been President and Chief
Executive Officer of the Company since May 1996.
Edward G. Jepsen has been Executive Vice President and Chief Financial
Officer of Amphenol since May 1989 and Senior Vice President and Director of
Finance since November 1988. He was also a Director of Amphenol from January
1991 to May 1997.
Timothy F. Cohane has been a Vice President of Amphenol since December
1991. He was also a Director of Amphenol from June 1987 to May 1997. He has been
President and Chief Operating Officer of the Company's Times Fiber subsidiary
since 1994.
Edward C. Wetmore has been Secretary and General Counsel of Amphenol since
1987.
Diana G. Reardon has been Treasurer of Amphenol since March 1992 and
Controller since July 1994. Prior to that she served as Assistant Controller of
the Company.
12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company effected the initial public offering of its Class A Common
Stock in November 1991. The Company's Common Stock has been listed on the New
York Stock Exchange since that time under the symbol "APH." The following table
sets forth on a per share basis the high and low closing prices for the Common
Stock for both 1998 and 1997 as reported on the New York Stock Exchange.
1998 1997
------------------ ------------------
High Low High Low
---- --- ---- ---
First Quarter 64 53 1/4 26 21 3/4
Second Quarter 61 5/8 39 38 7/8 24 1/8
Third Quarter 44 1/8 29 13/16 43 1/2 39 1/16
Fourth Quarter 35 1/16 27 1/2 56 44
As of February 26, 1999 there were 68 holders of record of the Company's
Common Stock. A significant number of outstanding shares of Common Stock are
registered in the name of only one holder, which is a nominee of The Depository
Trust Company, a securities depository for banks and brokerage firms. The
Company believes that there are a significant number of beneficial owners of its
Common Stock.
Since its initial public offering in 1991, the Company has not paid any
cash dividends on its Common Stock and its does not have any present intention
to commence payment of any cash dividends. The Company intends to retain
earnings to provide funds for the operation and expansion of the Company's
business and to repay outstanding indebtedness.
Currently the Company is restricted from declaring and paying any cash
dividends on, or repurchasing the Company's Common Stock under certain covenants
contained in the Company's debt agreements.
13
Item 6. Selected Financial Data
(dollars in thousands, except per share data)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Operations
Net sales $ 918,877 $ 884,348 $ 776,221 $ 783,233 $ 692,651
Income before
extraordinary item 36,510 51,264 67,578 62,858 42,400
Extraordinary loss (24,547) (4,087)
Net income 36,510 26,717 67,578 62,858 38,313
Income per common share before
extraordinary item 2.07 1.84 1.45 1.33 .91
Extraordinary loss per common share (.88) (.09)
Net income per common share 2.07 .96 1.45 1.33 .82
Financial Position
Working capital $ 163,508 $ 137,526 $ 136,864 $ 121,313 $ 95,590
Total assets 807,401 737,154 710,662 689,924 677,055
Current portion of long-term debt 1,655 212 7,759 2,670 13,925
Long-term debt 952,469 937,277 219,484 195,195 234,251
Shareholders' equity (deficit) (292,257) (343,125) 360,548 344,085 278,640
Weighted average shares
outstanding 17,663,212 27,806,260 46,649,541 47,304,180 46,611,759
14
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 fiscal years ended December 31, 1998 has been derived from and should be
read in conjunction with the consolidated financial statements contained herein.
Results of Operations
The following table sets forth the components of net income before
extraordinary item as a percentage of net sales for the periods indicated.
Year Ended December 31,
- ---------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales, excluding depreciation and amortization 65.5 64.7 63.7
Depreciation and amortization expense 3.8 3.6 3.7
Selling, general and administrative expense 14.4 14.1 14.8
----- ----- -----
Operating income 16.3 17.6 17.8
Interest expense (8.8) (7.3) (3.2)
Other expenses, net (.5) (.1) (.5)
Non-recurring expenses relating to Merger and Recapitalization (.3)
----- ----- -----
Income before income taxes and extraordinary item 7.0 9.9 14.1
Provision for income taxes (3.0) (4.1) (5.4)
----- ----- -----
Net income before extraordinary item 4.0% 5.8% 8.7%
===== ===== =====
- ---------------------------------------------------------------------------------------------
1998 Compared to 1997
Net sales were $918.9 million for the year ended December 31, 1998
compared to $884.3 million for 1997. Sales of interconnect products and
assemblies increased 6% compared to 1997 ($718.1 - 1998; $679.9 - 1997). Such
increase is primarily due to increased sales of interconnect products and
assemblies for wireless communications, data applications and smart card
acceptor devices. Sales of interconnect products for space, military and
commercial aviation applications increased slightly and were offset by a decline
in sales for industrial applications. Sales of cable products declined 2%
compared to 1997 ($200.8 - 1998; $204.5 - 1997). Sales of coaxial cable for
cable television increased in the U.S. as cable operators began upgrading and
expanding their systems to offer enhanced services; however, the increase was
offset by declines in sales in international cable television markets, primarily
Asia and Latin America, as a result of generally weak economic conditions in
those regions. Sales of flat ribbon cable, primarily for data communication
applications, were approximately even with the prior year.
Geographically, sales in the U.S. in 1998 increased 8% compared to 1997
($499.9 million - 1998; $462.3 million - 1997); international sales for 1998,
including export sales, decreased 1% in U.S. dollars ($419.0 million - 1998;
$422.0 million - 1997) and increased approximately 1% in local currency compared
to 1997. The comparatively strong U.S. dollar in 1998 had the currency effect of
decreasing net sales by approximately $8.7 million when compared to foreign
currency translation rates in 1997.
The gross profit margin as a percentage of net sales (including
depreciation in cost of sales) decreased to 32% in 1998 from 33% in 1997. The
decrease is generally attributable to competitive pricing pressure on the
Company's coaxial cable products.
Selling, general and administrative expenses as a percentage of sales
remained relatively constant at approximately 14% in 1998 compared to 1997.
Interest expense was $81.2 million for 1998 compared to $64.7 million for
1997. The increase is due to increased debt levels resulting from the Merger and
Recapitalization in May 1997.
Other expenses, net for 1998 was $4.5 million, an increase of $3.4 million
from 1997. The 1997 period included a gain on the sale of marketable securities
of $3.9 million. See Note 9 to the Company's Consolidated Financial Statements
for details of the components of other expenses, net.
The provision for income taxes for 1998 was at an effective rate of 42.9%
compared to an effective rate of 41.2% in 1997. The increase is generally
attributable to non-deductible expenses (goodwill amortization) being a higher
percentage of pretax income.
1997 Compared to 1996
Net sales were $884.3 million for the year ended December 31, 1997
compared to $776.2 million for 1996.
15
Sales of interconnect products and assemblies increased 16% compared to 1996
($679.9 - 1997; $585.0 - 1996). Such increase is primarily due to increased
sales for wireless communications, data applications and smart card acceptor
devices as well as new and enhanced electronic aerospace and avionics
interconnect systems for space, military and commercial aviation applications.
Sales of cable products increased 7% compared to 1996 ($204.5 - 1997; $191.2 -
1996). Such increase is primarily due to increased sales of coaxial cable for
international cable television applications and increased sales of flat ribbon
cable for communication applications, partially offset by a decline in sales of
coaxial cable for U.S. cable television applications as a result of soft demand
and competitive pricing pressures.
Geographically, sales in the U.S.in 1997 increased 16% compared
to 1996 ($462.3 million - 1997; $397.0 million - 1996); international sales for
1997, including export sales, increased 11% in U.S. dollars ($422.0 million -
1997; $379.2 million - 1996) and increased approximately 18% in local currencies
compared to 1996. The comparatively stronger U.S. dollar in 1997 had the
currency translation effect of decreasing net sales by approximately $24.6
million when compared to foreign currency translation rates in 1996.
The gross profit margin as a percentage of net sales (including
depreciation in cost of sales) decreased to 33% in 1997 from 34% in 1996. The
decrease is generally attributable to price reductions on the Company's coaxial
cable products partially offset by increased sales of higher margin
application-specific connector products, increased efficiencies due to increased
production rates for certain connector products and continuing cost control
programs.
Selling, general and administrative expenses as a percentage of sales
declined to approximately 14% in 1997 compared to approximately 15% in 1996
primarily as a result of higher sales volume in the 1997 period.
Interest expense was $64.7 million for 1997 compared to $24.6 million for
1996. The increase is due to increased debt levels resulting from the Merger and
Recapitalization in May 1997.
Other expenses, net for 1997 was $1.1 million, a decrease of $2.6 million
from 1996. See Note 9 to the Company's Consolidated Financial Statements for
details of the components of other expenses, net.
The provision for income taxes for 1997 was at an effective rate of 41.2%
compared to an effective rate of 38.4% in 1996. The increase is generally
attributable to non-deductible expenses (goodwill amortization) being a higher
percentage of pre-tax income.
Liquidity and Capital Resources
Cash provided by operating activities totaled $53.2 million, $86.3
million, and $68.2 million for 1998, 1997 and 1996, respectively. The decrease
in cash from operating activities in 1998 compared to 1997 is primarily
attributable to increased interest payments ($78.6 million - 1998; $53.2 million
- - 1997) on borrowings resulting from the Merger and Recapitalization and
increased income taxes paid ($26.0 million - 1998; $20.6 million - 1997). In
1997, cash from operating activities was higher than 1996 primarily because of
changes in the non-cash components of working capital primarily reflecting
higher accounts payable and accrued liabilities.
Cash from operating activities was used for capital expenditures ($26.3
million, $24.1 million and $20.4 million in 1998, 1997 and 1996, respectively),
acquisitions ($32.7 million, $4.0 million, and $29.5 million in 1998, 1997 and
1996, respectively) and to repurchase in the open market the Company's common
stock ($52.7 million - 1996).
In conjunction with the 1997 Merger and Recapitalization, the Company
entered into a $900 million Bank Agreement with a syndicate of financial
institutions, comprised of a $150 million revolving credit facility that expires
in the year 2004 and a $750 million term loan facility - $350 million (Tranche
A) maturing over a 7 year period ending 2004, $200 million (Tranche B) maturing
in 2005 and $200 million (Tranche C) maturing in 2006. In October 1997, the
Company negotiated a significant amendment and restatement to the term loan
under the Bank Agreement. The amendment extinguished the Tranche B and C
indebtedness with borrowings under a new $375 million Term Loan Tranche B. The
new Term Loan Tranche B has required amortization in 2005 and 2006. The credit
agreement is secured by pledges of 100% of the capital stock of the Company's
direct domestic subsidiaries and 65% of the capital stock of direct material
foreign subsidiaries, and the agreement requires the maintenance of certain
interest coverage and leverage ratios, and includes limitations with respect to,
among other things, indebtedness and restricted payments, including dividends on
the Company's common stock. At December 31, 1998 there were $680 million of
borrowings outstanding under the term loan facility. Availability under the
revolving credit facility at December 31, 1998 was $128,478, after reduction of
$2,022 for outstanding letters of credit.
In July 1997, the Company entered into interest rate protection agreements
that effectively fixed the Company's interest cost on $450 million of borrowings
under the Bank Agreement to the extent that LIBOR interest rates remain below 7%
for $300 million of borrowings and below 8% for $150 million of borrowings.
The Company's EBITDA as defined in the Bank Agreement was $192.1 million
and $188.5 million for 1998 and 1997, respectively. EBITDA is not a defined term
under Generally Accepted Accounting Principles (GAAP) and is not an alternative
to operating
16
income or cash flow from operations as determined under GAAP. The Company
believes that EBITDA provides additional information for determining its ability
to meet future debt service requirements; however, EBITDA does not reflect cash
available to fund cash requirements.
The Company's primary ongoing cash requirements will be for debt service,
capital expenditures and product development activities. The Company's debt
service requirements consist primarily of principal and interest on bank
borrowings and interest on Senior Subordinated Notes due 2007. The Company has
not paid, and does not have any present intention to commence payment of, cash
dividends on its Common Stock. The Company expects that ongoing requirements for
debt service, capital expenditures and product development activities will be
funded by internally generated cash flow and availability under the Company's
revolving credit facility. The Company expects that capital expenditures in 1999
will be approximately $30 million. The Company's required debt amortization in
1999 is $1.7 million; the Company's required cash interest payments for 1999, at
current interest rates, are estimated at approximately $76 million. The Company
may also use cash to fund part or all of the cost of future acquisitions.
Environmental Matters
Subsequent to the acquisition of Amphenol Corporation in 1987, Amphenol
and Allied have been named jointly and severally liable as potentially
responsible parties in relation to several environmental cleanup sites. Amphenol
and Allied have jointly consented to perform certain investigations and remedial
and monitoring activities at two sites and they have been jointly ordered to
perform work at another site. The responsibility for costs incurred relating to
these sites is apportioned between Amphenol and Allied based on an agreement
entered into in connection with the acquisition. For sites covered by this
agreement, to the extent that conditions or circumstances occurred or existed at
the time of or prior to the acquisition, Allied is currently obligated to pay
80% of the costs up to $30 million and 100% of the costs in excess of $30
million. At December 31, 1998, approximately $15 million of the total costs have
been incurred applicable to this agreement. Management does not believe that the
costs associated with resolution of these or any other environmental matters
will have a material adverse effect on the Company's financial condition or
results of operations.
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, brass and steel used for contacts, shells and
cable; and plastic materials used in molding connector bodies, inserts and
cable. In general, increases in the cost of raw materials, labor and services
have been offset by price increases, productivity improvements and cost saving
programs.
Risk Management
The Company has to a significant degree mitigated its exposure to currency
risk in its business operations by manufacturing and procuring its products in
the same country or region in which the products are sold so that costs reflect
local economic conditions. In other cases involving U.S. export sales, raw
materials are a significant component of product costs for the majority of such
sales and raw material costs are generally dollar based on a worldwide scale,
such as basic metals and petroleum derived materials.
Recent Accounting Change
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that an entity
recognize all derivatives as either assets or liabilities in the Statement of
Financial Position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and its resulting designation. The
Company is in the process of evaluating the effect this new standard will have
on the Company's financial statements. The Company is required to adopt FAS 133
beginning after January 1, 2000.
Information Systems and the Year 2000
The Year 2000 issue is primarily the result of computer programs using a
two digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to a disruption in the
operation of such systems. In 1996, the Company began a systematic review of all
of its business information systems to ensure that the systems now in use
worldwide will be Year 2000 compliant before the turn of the century. The
Company has established a Year 2000 Program Management Group to provide overall
guidance and direction for this compliance mission. Communications were
initiated to all of the Company's business units focusing on the critical nature
of this project and the Program Management Group has continually monitored the
progress and status of each business unit. The Program Management Group has
focused its efforts on four main areas: (1) information systems software and
hardware; (2) non-information technology systems; (3) facilities equipment; and
(4) customer and vendor relationships. The Company expects its Year 2000
17
conversion project to be completed on a timely basis so as to not significantly
impact business operations.
Based on the assessment efforts to date, the Company does not believe that
the Year 2000 issue will have a material adverse effect on its financial
condition or results of operations. The Company operates a number of business
units worldwide and has a large supplier base and believes that this will
mitigate any adverse impact. The Company's beliefs and expectations, however,
are based on certain assumptions and expectations that ultimately may prove to
be inaccurate. Potential sources of risk include: (a) the inability of principal
suppliers to be Year 2000 ready, which could result in delays in product
deliveries from such suppliers, (b) disruption of the product distribution
channel, including ports and transportation vendors and (c) the general
breakdown of necessary infrastructure such as electricity supply. The Company is
developing contingency plans to reduce the impact of transactions with
non-compliant suppliers and other parties. Although there can be no assurance
that multiple business disruptions caused by technology failures can be
adequately anticipated, the Company is identifying various alternatives to
minimize the potential risk to its business operations.
The Company estimates the cost for its Year 2000 compliance efforts to be
approximately $3.0 million, including the cost of new systems and upgrades some
of which will be capitalized. The cost is being funded through operating cash
flows. The Company's aggregate cost estimate does not include time and costs
that may be incurred by the Company as a result of the failure of any third
parties, including suppliers, to become Year 2000 ready or costs to implement
any contingency plans. Such costs are not anticipated to have a material impact
on the Company's financial position, results of operations or cash flows.
Euro Currency Conversion
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (Euro). The transition period for the
introduction of the Euro is between January 1, 1999 and January 1, 2002. The
Company is addressing issues associated with the Euro conversion and although
the Company cannot predict the overall impact of the Euro conversion at this
time, the Company does not expect that the Euro conversion will have a material
adverse effect on its financial condition or results of operations.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The Company, in the normal course of doing business, is exposed to the
risks associated with foreign currency exchange rates and changes in interest
rates.
Foreign Currency Exchange Rate Risk
The Company conducts business in several major international currencies
through its worldwide operations, and as a result is subject to foreign exchange
exposures due to changes in exchange rates of the various currencies. Changes in
exchange rates can positively or negatively effect the Company's sales, gross
margins and retained earnings. The Company attempts to minimize currency
exposure risk by producing its products in the same country or region in which
the products are sold and thereby generating revenues and incurring expenses in
the same currency and by managing its working capital; although there can be no
assurance that this approach will be successful, 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. In addition, the Company
periodically enters into foreign exchange contracts to hedge its transaction
exposures. At December 31, 1998 the Company had no outstanding foreign exchange
contracts. The Company does not engage in purchasing forward exchange contracts
for speculative purposes.
Interest Rate Risk
The Company is subject to market risk from exposure to changes in interest
rates based on its financing activities. The Company utilizes interest rate swap
agreements to manage and mitigate its exposure to changes in interest rates. At
December 31, 1998, the Company had interest rate protection in the form of such
swaps that effectively fixed the Company's LIBOR interest rate on $450 million
of floating rate bank debt at 5.76%. At December 31, 1998, the three month LIBOR
rate was 5.09%. Such swap agreements are in effect to the extent that LIBOR
remains below 7% for $300 million of debt and remains below 8% for an additional
$150 million of debt. These swap agreements expire in July 2002. A 10% change in
the LIBOR interest rate at December 31, 1998 would have the effect of increasing
or decreasing interest expense by approximately $1.5 million. However, if the
LIBOR interest rate increased above 7% (a 38% increase from the LIBOR interest
rate at December 31, 1998), further increases above 7% would have a more
significant effect in increasing interest expense. The Company does not expect
changes in interest rates to have a material effect on income or cash flows in
1999, although there can be no assurances that interest rates will not
significantly change.
18
Item 8. Financial Statements and Supplementary Data
Report of Management
Management is responsible for the integrity and objectivity of the
financial statements and other information appearing in this annual report on
Form 10-K. The financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts based on
management's best estimates and judgments, with due consideration given to
materiality. The Company maintains a system of internal accounting controls and
procedures intended to provide reasonable assurance that assets are safeguarded
and transactions are properly recorded and accounted for in accordance with
management's authorization.
Deloitte & Touche LLP has been engaged to audit the financial statements
in accordance with generally accepted auditing standards. They obtain an
understanding of the Company's accounting policies and controls, and conduct
such tests and related procedures as they consider necessary to arrive at their
opinion. The Board of Directors has appointed an Audit Committee composed of
outside directors. The Audit Committee meets periodically with representatives
of management and Deloitte & Touche LLP to discuss and review their activities
with respect to internal accounting controls and financial reporting and
auditing.
Independent Auditors' Report
To the Board of Directors and
Shareholders of Amphenol Corporation
We have audited the accompanying consolidated balance sheet of Amphenol
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity (deficit),
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 1998 and 1997 consolidated financial statements
present fairly, in all material respects, the financial position of Amphenol
Corporation and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Stamford, Connecticut
January 19, 1999
Report of Independent Accountants
To the Board of Directors and
Shareholders of Amphenol Corporation
In our opinion, the consolidated statement of income, of changes in
shareholders' equity and of cash flow for the year ended December 31, 1996
(appearing on pages 20, 22 and 23 of the Amphenol Corporation 1998 Annual Report
to Shareholders which has been incorporated by reference in this Form 10-K
Annual Report) present fairly, in all material respects, the results of
operations and cash flows of Amphenol Corporation and its subsidiaries for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Amphenol
Corporation for any period subsequent to December 31, 1996.
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 14, 1997
19
Consolidated Statement of Income
(dollars in thousands, except per share data)
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
Net sales $918,877 $884,348 $776,221
Costs and expenses:
Cost of sales, excluding depreciation and amortization 601,930 572,092 494,689
Depreciation and amortization expense 23,553 20,428 17,846
Selling, general and administrative expense 131,966 125,064 114,746
Amortization of goodwill 11,701 11,316 10,962
-------- -------- --------
Operating income 149,727 155,448 137,978
Interest expense (81,199) (64,713) (24,617)
Expenses relating to Merger and Recapitalization (Note 2) (2,500)
Other expenses, net (4,545) (1,061) (3,696)
-------- -------- --------
Income before income taxes and extraordinary item 63,983 87,174 109,665
Provision for income taxes (27,473) (35,910) (42,087)
-------- -------- --------
Income before extraordinary item 36,510 51,264 67,578
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes of $14,728 (Notes 2 and 3) (24,547)
-------- -------- --------
Net income $ 36,510 $ 26,717 $ 67,578
======== ======== ========
Net income per common share:
Income before extraordinary item $2.07 $1.84 $1.45
Extraordinary loss (.88)
----- ---- -----
Net income $2.07 $.96 $1.45
===== ==== =====
Average common shares outstanding 17,663,212 27,806,260 46,649,541
Net income per common share - assuming dilution:
Income before extraordinary item $2.03 $1.83 $1.45
Extraordinary loss (.88)
----- ---- -----
Net income $2.03 $.95 $1.45
===== ==== =====
Average common shares outstanding - assuming dilution 17,942,397 28,002,977 46,720,900
20
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheet (dollars
in thousands, except per share data)
December 31,
- -----------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and short-term cash investments $ 3,095 $ 4,713
Accounts receivable, less allowance for
doubtful accounts of $1,832 and $1,633 83,065 70,037
Inventories:
Raw materials and supplies 24,806 21,115
Work in process 114,035 96,833
Finished goods 45,583 49,062
--------- ---------
184,424 167,010
Prepaid expenses and other assets 17,089 13,020
--------- ---------
Total current assets 287,673 254,780
--------- ---------
Land and depreciable assets:
Land 10,782 10,702
Buildings 68,426 64,149
Machinery and equipment 237,618 206,525
--------- ---------
316,826 281,376
Less accumulated depreciation (190,047) (169,784)
--------- ---------
126,779 111,592
Deferred debt issuance costs 16,783 19,377
Excess of cost over fair value of net assets acquired 360,265 339,223
Other assets 15,901 12,182
--------- ---------
$ 807,401 $ 737,154
========= =========
Liabilities & Shareholders' Deficit
Current Liabilities:
Accounts payable $ 67,885 $ 64,255
Accrued interest 11,306 11,442
Accrued salaries, wages and employee benefits 14,385 14,229
Other accrued expenses 28,934 27,116
Current portion of long-term debt 1,655 212
--------- ---------
Total current liabilities 124,165 117,254
--------- ---------
Long-term debt 952,469 937,277
Deferred taxes and other liabilities 23,024 25,748
Commitments and contingent liabilities (Notes 3, 7 and 10)
Shareholders' Deficit:
Class A Common Stock, $.001 par value; 40,000,000 shares authorized;
17,862,328 and 17,532,804 shares outstanding at December 31, 1998
and 1997, respectively 18 18
Additional paid-in deficit (499,928) (511,582)
Accumulated earnings 214,861 178,351
Accumulated other comprehensive income (Note 6) (7,208) (9,912)
--------- ---------
Total shareholders' deficit (292,257) (343,125)
--------- ---------
$ 807,401 $ 737,154
========= =========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
21
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
(dollars in thousands, except per share data)
Accumulated
Additional Other Total
Paid-In Comprehensive Treasury Shareholders'
Common Capital Comprehensive Accumulated Income Stock Equity
Stock (Deficit) Income Earnings (Note 6) at Cost (Deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 $47 $ 265,193 $ 84,056 $ (5,211) $ 344,085
Comprehensive income:
Net income [ $67,578 ] 67,578 67,578
Other comprehensive income -------
(loss), net of tax:
Unrealized loss on market-
able securities (1,085) (1,085)
Translation adjustments 647 647
Minimum pension liability
adjustment 1,762 1,762
-------
Other comprehensive income 1,324 1,324
-------
Comprehensive income [ $68,902 ]
=======
Purchase of Treasury Stock $(52,671) (52,671)
Amortization of deferred
compensation 65 65
Stock options exercised 167 167
Balance December 31, 1996 47 265,425 151,634 (3,887) (52,671) 360,548
--- ------------ -------- ---------- ------------
Comprehensive income:
Net income [ $26,717 ] 26,717 26,717
-------
Other comprehensive income
(loss), net of tax:
Reclassification adjustment
for gain on securities
realized in net income (3,687) (3,687)
Translation adjustments (8,147) (8,147)
Minimum pension liability
adjustment 5,809 5,809
-------
Other comprehensive income (6,025) (6,025)
-------
Comprehensive income [ $20,692 ]
=======
Stock subscription proceeds 532 532
Sale of 13,116,955 shares
of Common Stock (Note 2) 13 341,028 341,041
Purchase of 40,325,240 shares
of Common Stock (Note 2) (40) (1,048,450)
(1,048,490)
Fees and other expenses
related to the Merger and
Recapitalization (Note 2) (17,644) (17,644)
Retirement of Treasury Stock (2) (52,669) 52,671
Amortization of deferred
compensation 186 186
Stock options exercised 10 10
--- ------------ -------- ---------- ------------
Balance December 31, 1997 18 (511,582) 178,351 (9,912) -- (343,125)
Comprehensive income:
Net income [ $36,510 ] 36,510 36,510
-------
Other comprehensive income,
net of tax:
Translation adjustments 2,704 2,704 2,704
-------
Comprehensive income [ $39,214 ]
=======
Stock subscription proceeds 25 25
Deferred compensation 180 180
Stock issued in connection
with acquisition 11,449 11,449
--- ------------ -------- ---------- ------------
Balance December 31, 1998 $18 $ (499,928) $214,861 $ (7,208) $ (292,257)
=== ============ ======== ========== ============
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
Consolidated Statement of Cash Flow
(dollars in thousands, except per share data)
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Net income $ 36,510 $ 26,717 $ 67,578
Adjustments for cash from operations:
Depreciation and amortization 35,254 31,744 28,808
Amortization of deferred debt issuance costs 2,749 2,638 691
Net extraordinary charge for write off of
deferred debt issuance costs 24,547
Non-recurring expenses relating to the Merger and
Recapitalization 2,500
Gain on sale of marketable securities (3,917)
Net change in:
Accounts receivable (2,926) (18,261) 7,315
Inventory (9,229) (17,700) (10,801)
Prepaid expenses and other assets (1,788) (2,479) 604
Accounts payable (257) 15,653 (3,411)
Accrued liabilities (4,251) 18,938 (13,644)
Accrued interest (142) 8,944 (188)
Accrued pension and post employment benefits (1,102) (4,717) (7,590)
Deferred taxes and other liabilities 57 2,607 (970)
Other (1,647) (952) (185)
----------- ----------- -----------
Cash flow provided by operations 53,228 86,262 68,207
----------- ----------- -----------
Cash flow from investing activities:
Additions to property, plant and equipment (26,340) (24,059) (20,374)
Investments in acquisitions and joint ventures (32,663) (4,000) (29,461)
Proceeds from the sale of marketable securities 7,351
----------- ----------- -----------
Cash flow used by investing activities (59,003) (20,708) (49,835)
----------- ----------- -----------
Cash flow from financing activities:
Net change in borrowings under revolving credit facilities 9,157 (20,461) 26,255
Repurchase of senior notes and subordinated debt (212,479)
Payment of fees and other expenses related to
Merger and Recapitalization (59,436)
Borrowings under Bank Agreement 750,000
Net change in receivables sold 10,000
Decrease in borrowings under Bank Agreement (5,000) (65,000)
Proceeds from the issuance of senior subordinated notes 240,000
Purchase of Amphenol Common Stock (1,048,490)
Sale of common stock related to Merger 341,041
Treasury stock repurchases (52,671)
----------- ----------- -----------
Cash flow provided by (used by) financing activities 4,157 (64,825) (26,416)
----------- ----------- -----------
Net change in cash and short-term cash investments (1,618) 729 (8,044)
Cash and short-term cash investments balance, beginning of period 4,713 3,984 12,028
----------- ----------- -----------
Cash and short-term cash investments balance, end of period $ 3,095 $ 4,713 $ 3,984
=========== =========== ===========
Cash paid during the year for:
Interest $ 78,634 $ 53,237 $ 24,180
Income taxes paid, net of refunds 26,024 20,623 54,765
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 1 - Summary of Significant Accounting Policies
Operations
Amphenol Corporation ("Amphenol" or the "Company") is in two business
segments which consist of manufacturing and selling interconnect products and
assemblies, and manufacturing and selling cable products.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany transactions have been eliminated in
consolidation.
Cash and Short-Term Cash Investments
Cash and short-term cash investments consist of cash and liquid
investments with an original maturity of less than three months.
Inventories
Inventories are stated at the lower of standard cost, which approximates
average cost, or market. The principal components of cost included in
inventories are materials, direct labor and manufacturing overhead.
Depreciable Assets
Property, plant and equipment are carried at cost. Depreciation and
amortization of property, plant and equipment are provided on a straight-line
basis over the respective asset lives determined on a composite basis by asset
group or on a specific item basis using the estimated useful lives of such
assets which range from 3 to 12 years for machinery and equipment and 20 to 40
years for buildings. It is the Company's policy to periodically review fixed
asset lives.
Deferred Debt Issuance Costs
Deferred debt issuance costs are being amortized on the interest method
over the term of the related debt and such amortization is included in interest
expense.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired (goodwill)
is being amortized on the straight-line basis over a period of 40 years.
Accumulated amortization was $108,674 and $96,973 at December 31, 1998 and 1997,
respectively. Management continually reassesses the appropriateness of both the
carrying value and remaining life of goodwill. Such reassessments are based on
forecasting cash flows, on an undiscounted basis, and other factors. In the
event an impairment is indicated, the amount of the impairment would be based on
estimated discounted cash flows.
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of products.
Sales and related cost of sales under long-term contracts with commercial
customers and the U.S. Government are recognized as units are delivered or
services provided.
Retirement Pension Plans
Costs for retirement pension plans include current service costs and
amortization of prior service costs over periods of up to thirty years. It is
the Company's policy to fund current pension costs taking into consideration
minimum funding requirements and maximum tax deductible limitations. The expense
of retiree medical benefit programs is recognized during the employees' service
with the Company as well as amortization of a transition obligation recognized
on adoption of the accounting principle.
24
Income Taxes
Deferred income taxes are provided for revenue and expenses which are
recognized in different periods for income tax and financial statement purposes.
Deferred income taxes are not provided on undistributed earnings of foreign
affiliated companies which are considered to be permanently invested.
Research and Development
Research, development and engineering expenditures for the creation and
application of new and improved products and processes were $17,669, $15,313 and
$14,550, excluding customer sponsored programs representing expenditures of
$523, $214 and $927, for the years 1998, 1997 and 1996, respectively.
Environmental Obligations
The Company recognizes the potential cost for environmental remediation
activities when assessments are made, remedial efforts are probable and related
amounts can be reasonably estimated; potential insurance reimbursements are not
recorded. The Company regularly assesses its environmental liabilities through
reviews of contractual commitments, site assessments, feasibility studies and
formal remedial design and action plans.
Net Income per Common Share
Net income per common share is based on the net income for the period
divided by the weighted average common shares outstanding. Net income per common
share assuming dilution assumes the exercise of outstanding, dilutive stock
options using the treasury stock method.
Derivative Financial Instruments
Derivative financial instruments, which are periodically used by the
Company in the management of its interest rate and foreign currency exposures,
are accounted for on an accrual basis. Income and expense are recorded in the
same category as that arising from the related asset or liability. For example,
amounts to be paid or received under interest rate swap agreements are
recognized as interest income or expense in the periods in which they accrue.
Note 2 - Merger and Recapitalization
On May 19, 1997, the Company merged with NXS Acquisition Corp., a wholly
owned subsidiary of KKR 1996 Fund L.P., KKR Partners II, L.P., and NXS
Associates, L.P., limited partnerships formed at the direction of Kohlberg
Kravis Roberts & Co. L.P. ("KKR"). The Merger had the effect of affiliates of
KKR investing $341,041 in exchange for 13,116,955 shares, or 75% of the
Company's common stock. Such equity proceeds , along with $240,000 of proceeds
from the sale of 9 7/8% Senior Subordinated Notes due 2007 and borrowings of
$750,000 under a $900,000 bank loan agreement ("Bank Agreement") were used to
repurchase 40,325,240 shares of the Company's common stock for $1,048,490,
purchase all of the Company's outstanding 10.45% Senior Notes and substantially
all of the Company's 12 3/4% Subordinated Debentures for $211,153 and pay fees
and expenses of $59,436, including $18,000 paid to KKR and $39,292 relating to
the issuance of new debt.
The Merger and related transactions have been recorded as a
recapitalization ("Merger and Recapitalization"). Expenses of $17,644 related to
the repurchase of the Company's common stock have been reflected as a reduction
of additional paid-in capital; other expenses of approximately $2,500, primarily
relating to the buyout of certain stock options, are reflected in the
accompanying Consolidated Statement of Income. In conjunction with the Merger
and Recapitalization, the Company recorded the costs associated with early
extinguishment of debt of $12,845, net of tax, as an extraordinary item in the
accompanying Consolidated Statement of Income. Such costs included the premium
associated with redemption of the Company's 10.45% Senior Notes and 12 3/4%
Subordinated Debentures and the write off of unamortized deferred debt issuance
costs. Supplemental earnings per share for 1997 assuming the Merger and
Recapitalization was completed at January 1, 1997, and excluding the impact of
related non-recurring expenses, is $1.98 per share.
25
Note 3 - Long-Term Debt
Long-term debt consists of the following:
December 31,
- ----------------------------------------------------------------------------------------------------
Interest Rate at
December 31, 1998 Maturity 1998 1997
- ----------------------------------------------------------------------------------------------------
Bank Agreement:
Term loan 7.35% 2000-2006 $680,000 $685,365
Revolving credit facility 7.12% 2004 19,500
Senior subordinated notes 9.875% 2007 240,000 240,000
Notes payable to foreign banks and other debt 1.0%-21.0% 1999-2004 14,624 12,124
-------- --------
954,124 937,489
Less current portion 1,655 212
-------- --------
Total long-term debt $952,469 $937,277
======== ========
- ----------------------------------------------------------------------------------------------------
In conjunction with the Merger and Recapitalization, the Company entered
into a $900,000 Bank Agreement with a syndicate of financial institutions,
comprised of a $150,000 revolving credit facility that expires in the year 2004
and a $750,000 term loan facility - $350,000 (Tranche A) maturing over a
seven-year period ending 2004, $200,000 (Tranche B) maturing in 2005 and
$200,000 (Tranche C) maturing in 2006. In October 1997, the Company negotiated a
significant amendment and restatement to the term loan under the Bank Agreement.
The amendment extinguished the Tranche B and C indebtedness with borrowings
under a new $375,000 Term Loan Tranche B with required amortization in 2005 and
2006. In conjunction with the amendment and restatement, the Company incurred an
extraordinary loss, net of tax, of $11,702 for the write off of unamortized
deferred debt issuance costs. At December 31, 1998, the Company had prepaid
$70,000 of the original term loan. Availability under the revolving credit
facility at December 31, 1998 was $128,478, after reduction of $2,022 for
outstanding letters of credit.
At December 31, 1998, interest under the Bank Agreement generally accrues
at .25% to .75% over prime or 1.50% to 2.0% over LIBOR at the Company's option.
The Company also pays certain annual agency and commitment fees. At December 31,
1998, the Company had interest rate protection in the form of swap agreements
that effectively fixed the Company's LIBOR interest rate on $450,000 of floating
rate bank debt at 5.76%. Such agreements are in effect to the extent that LIBOR
remains below 7% for $300,000 of debt and remains below 8% for an additional
$150,000 of debt. These agreements expire in July 2002.
The Bank Agreement is secured by a first priority pledge of 100% of the
capital stock of the Company's direct domestic subsidiaries and 65% of the
capital stock of direct material foreign subsidiaries, as defined in the Bank
Agreement. The Bank Agreement also requires that the Company satisfy certain
financial covenants including interest coverage and leverage ratio tests, and
includes limitations with respect to, among other things, (i) incurring debt,
(ii) creating or incurring liens, (iii) making other investments, (iv) acquiring
or disposing of assets, (v) capital expenditures, and (vi) restricted payments,
including dividends on the Company's common stock.
The 9 7/8% Senior Subordinated Notes due 2007 are general unsecured
obligations of the Company. The notes are subject to redemption at the option of
the Company, in whole or in part, beginning in 2002 at 104.938% and declining to
100% by 2005. In addition, at any time prior to 2000, the Company may, at its
option, redeem up to $96,000 of the notes at a redemption price of 109.875% with
the net cash proceeds of one or more equity offerings.
The maturity of the Company's long-term debt over each of the next five
years ending December 31, is as follows: 1999 - $1,655; 2000 - $16,573; 2001 -
$49,151; 2002 - $61,504; 2003 - $82,026.
26
Note 4 - Income Taxes
The components of income before income taxes and extraordinary item and
the provision for income taxes are as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Income before taxes and extraordinary item:
United States $ 18,725 $ 45,354 $ 67,889
Foreign 45,258 41,820 41,776
-------- -------- --------
$ 63,983 $ 87,174 $109,665
======== ======== ========
Current provision:
United States $ 10,002 $ 21,857 $ 24,174
Foreign 17,651 12,611 15,993
-------- -------- --------
27,653 34,468 40,167
-------- -------- --------
Deferred provision:
United States $ 745 $ 1,407 $ 1,884
Foreign (925) 35 36
-------- -------- --------
(180) 1,442 1,920
-------- -------- --------
Total provision for income taxes $ 27,473 $ 35,910 $ 42,087
======== ======== ========
- --------------------------------------------------------------------------------
At December 31, 1998, the Company had $19,253 of foreign tax loss
carryforwards, of which $1,768 expire at various dates through 2003 and the
balance can be carried forward indefinitely, and $450 of tax credit
carryforwards that expire between the years 1999 and 2011. Accrued income tax
liabilities of $5,667 and $8,251 at December 31, 1998 and 1997, respectively,
are included in other accrued expenses in the Consolidated Balance Sheet.
Differences between the U.S. statutory federal tax rate and the Company's
effective income tax rate are analyzed below:
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
U.S. statutory federal tax rate 35.0% 35.0% 35.0%
State and local taxes 2.1 1.4 1.5
Non-deductible purchase accounting differences 6.4 4.5 3.7
Foreign tax provisions (benefit) at rates different from the U.S. statutory rate 1.4 (2.2) .5
Tax cost (benefit) of foreign dividend income, net of related tax credits 1.4 3.1 (2.6)
Valuation allowance (.9) .1 (4.1)
Other (2.5) (.7) 4.4
---- ---- ----
Effective tax rate 42.9% 41.2% 38.4%
==== ==== ====
The Company's deferred tax assets and liabilities, excluding a valuation
allowance, were comprised of the following:
December 31,
-----------------
1998 1997
------- -------
Deferred tax assets:
Accrued liabilities and reserves $ 4,415 $ 5,583
Operating loss carryforwards 7,298 7,214
Foreign tax credit carryforwards 450 348
Employee benefits 2,221 1,933
------- -------
$14,384 $15,078
======= =======
Deferred tax liabilities:
Depreciation $ 7,399 $ 8,031
Prepaid pension costs 6,103 6,984
------- -------
$13,502 $15,015
======= =======
27
A valuation allowance of $9,182 and $9,731 at December 31, 1998 and 1997,
respectively, has been recorded which relates primarily to foreign net operating
loss carryforwards, tax credits and certain deferred tax deductions for which a
tax benefit is less likely than not to be received. The net change in the
valuation allowance for deferred tax assets was a reduction of $549 in 1998 and
an increase of $1,547 in 1997. The net change in the valuation allowance was
principally due to the expiration of tax credits in 1998 and the incurrence of
foreign net operating loss carryforwards in 1997. Current and non-current
deferred tax assets and liabilities within the same tax jurisdiction are offset
for presentation in the Consolidated Balance Sheet.
United States income taxes have not been provided on undistributed
earnings of international subsidiaries. The Company's intention is to reinvest
these earnings permanently or to repatriate the earnings only when it is tax
effective to do so. Accordingly, the Company believes that any United States tax
on repatriated earnings would be substantially offset by U.S. foreign tax
credits. The Company is subject to periodic audits of its various tax returns by
government agencies; management does not believe that amounts, if any, which may
be required to be paid by reason of such audits will have a material effect on
the Company's financial position or results of operations.
Note 5 - Benefit Plans and Other Postretirement Benefits
The Company and its domestic subsidiaries had a number of defined benefit
plans covering substantially all U.S. employees. Effective December 31, 1997,
the individual U.S. plans were merged into one plan . The information presented
below for U.S. plans for 1998 and 1997 is on the basis of the merged plans. Plan
benefits are generally based on years of service and compensation. The plans are
noncontributory, except for certain salaried employees. Certain foreign
subsidiaries have defined benefit plans covering their employees. The following
is a summary of the Company's defined benefit plans funded status as of the most
recent actuarial valuations (December 31, 1998 and 1997).
December 31, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Assets Accumulated Assets
Benefits Exceed Benefits Exceed
Exceed Accumulated Exceed Accumulated
Assets Benefits Assets Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 21,540 $ 178,982 $ 23,691 $ 166,535
Service cost 768 3,697 744 3,225
Interest cost 1,450 12,692 1,403 12,358
Plan participants' contributions 272 265
Plan amendments 4,797 1,678
Actuarial (gain) loss 762 7,955 (52) 10,819
Settlements and curtailments (609)
Foreign exchange 1,717 (223) (3,369) (452)
Benefits paid (935) (14,538) (877) (14,837)
--------- --------- --------- ---------
Benefit obligation at end of year 25,302 193,634 21,540 178,982
--------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year 204,679 178,839
Actual return on plan assets 32,065 37,832
Employer contribution 61 3,458
Plan participants' contributions 272 265
Foreign exchange (320) (878)
Benefits paid (14,538) (14,837)
--------- --------- --------- ---------
Fair value of plan assets at end of year -- 222,219 -- 204,679
--------- --------- --------- ---------
Funded status (25,302) 28,585 (21,540) 25,697
Unrecognized net actuarial (gain) loss 1,075 (9,236) 252 (4,046)
Unrecognized prior service cost 10,076 6,609
Unrecognized transition obligation net 167 (2,540) 177 (2,867)
--------- --------- --------- ---------
(Accrued) prepaid benefit cost $ (24,060) $ 26,885 $ (21,111) $ 25,393
========= ========= ========= =========
28
Year Ended December 31,
- --------------------------------------------------------------------------------------
1998 1997 1996
-------- -------- --------
Components of net pension cost:
Service cost $ 4,465 $ 3,969 $ 3,723
Interest cost 14,142 13,761 13,707
Expected return on plan assets (18,038) (35,321) (16,193)
Net amortization and deferral of actuarial losses 983 19,417 1,321
-------- -------- --------
Net pension cost $ 1,552 $ 1,826 $ 2,558
======== ======== ========
- --------------------------------------------------------------------------------------
The weighted-average discount rate and rate of increase in future
compensation levels used in determining actuarial present value of the projected
benefit obligation was 7.0% (7.25% in 1997 and 7.5% in 1996) and 3.0% (3.25% in
1997 and 3.50% in 1996), respectively. The expected long-term rate of return on
assets was 10.5%. Plan assets consist primarily of U.S. equity and debt
securities. The Company has also adopted an unfunded Supplemental Employee
Retirement Plan ("SERP") which provides for the payment of the portion of annual
pension which cannot be paid from the retirement plan as a result of regulatory
limitations on average compensation for purposes of the benefit computation. The
largest non-U.S. pension plan, in accordance with local custom, is unfunded and
had an accumulated benefit obligation of approximately $21,139 and $18,656 at
December 31, 1998 and 1997, respectively. Such obligation is included in the
Consolidated Balance Sheet and the tables above. Pension plans of certain of the
Company's other international subsidiaries generally do not determine the
actuarial value of accumulated benefits and the value of net assets on the basis
shown above. The plans, in accordance with local practices, are generally
unfunded. The vested benefit obligations of these plans are not significant.
The Company maintains self insurance programs for that portion of its
health care and workers compensation costs not covered by insurance. The Company
also provides certain health care and life insurance benefits to certain
eligible retirees through postretirement benefit programs. The Company's share
of the cost of such plans for most participants is fixed, and any increase in
the cost of such plans will be the responsibility of the retirees. The Company
funds the benefit costs for such plans on a pay-as-you-go basis. Since the
Company's obligation for postretirement medical plans is fixed and since the
accumulated postretirement benefit obligation ("APBO") and the net
postretirement benefit expense are not material in relation to the Company's
financial condition or results of operations, management believes any change in
medical costs from that estimated will not have a significant impact on the
Company. The discount rates used in determining the APBO at December 31, 1998
and 1997 were 7.0% and 7.25%, respectively.
29
Summary information on the Company's postretirement medical plans as of
December 31, 1998 and 1997 is as follows:
December 31,
--------------------
1998 1997
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year $ 13,027 $ 13,102
Service cost 72 65
Interest cost 935 963
Benefits and expenses paid by Amphenol (2,616) (2,092)
Actuarial gain (loss) 1,247 989
-------- --------
Benefit obligation at end of year $ 12,665 $ 13,027
======== ========
Funded status $(12,665) $(13,027)
Unrecognized net actuarial loss 9,111 8,507
Unrecognized transition obligation 869 931
-------- --------
Accrued benefit cost $ (2,685) $ (3,589)
======== ========
Year ended December 31,
------------------------
1998 1997 1996
------ ------ ------
Components of net postretirement benefit cost:
Service cost $ 72 $ 65 $ 36
Interest cost 935 963 1,545
Amortization of transition obligation 62 62 424
Net amortization and deferral of actuarial losses 961 733 729
------ ------ ------
Net postretirement benefit cost $2,030 $1,823 $2,734
====== ====== ======
Note 6 - Shareholders' Equity (Deficit)
The Company had a stock option plan which authorized the granting of stock
options by the Board of Directors for up to a maximum of 1,000,000 shares of
Class A Common Stock (the "Old Plan"). In conjunction with the Merger and
Recapitalization, all outstanding options under the Old Plan were cancelled and
the holders of options with an exercise price less than $26.00 per share were
paid the difference between $26.00 and the exercise price. Such amount for all
of the then outstanding options was approximately $2.2 million. In May 1997, the
Company adopted the 1997 Option Plan (the "New Plan") which authorizes the
granting of stock options by a committee of the Board of Directors for up to a
maximum of 1,200,000 shares of Common Stock. In May 1998, the New Plan was
amended to increase the number of authorized shares to a maximum of 1,750,000.
Options granted under the New Plan vest ratably over a period of five years from
the date of grant and are exercisable over a period of ten years from the date
of grant. In addition, shares issued in conjunction with the exercise of stock
options under the New Plan are generally subject to a Management Stockholders'
Agreement which, among other things, places restrictions on the sale or transfer
of such shares.
Stock option plan activity for 1996, 1997, and 1998 was as follows:
30
- --------------------------------------------------------------------------------------
Old Plan New Plan Average Price
- --------------------------------------------------------------------------------------
Options outstanding at December 31, 1995 313,844 $18.48
Options granted 173,600 23.82
Options exercised (15,005) 11.11
Options cancelled (49,001) 21.53
--------
Options outstanding at December 31, 1996 423,438 20.58
Options granted 1,190,176 26.12
Options exercised (14,001) 13.15
Options cancelled (409,437) (11,750) 20.47
-------- ---------
Options outstanding at December 31, 1997 -- 1,178,426 26.12
Options granted -- 240,460 50.82
Options cancelled -- (148,450) 51.36
-------- ---------
Options outstanding at December 31, 1998 -- 1,270,436 $27.85
======== =========
The following table summarizes information about stock options outstanding
at December 31, 1998:
Options Outstanding Options Exercisable
----------------------------------- --------------------
Average Average
Exercise Price Shares Price Term Shares Price
-------------- --------- ------- ---- ------- -------
$26.00 1,137,676 $26.00 8.38 227,535 $26.00
32.00 66,060 32.00 9.82 -- --
39.93 10,000 39.93 8.63 2,000 39.93
58.00 56,700 58.00 9.27 -- --
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the stock option
plans. Accordingly, no compensation cost has been recognized for the plans. Had
compensation cost for the stock option plans been determined based on the fair
value of the option at date of grant consistent with the requirements of SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's income before
extraordinary item and net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
1998 1997 1996
---- ---- ----
Income before
extraordinary item As reported $36,510 $51,264 $67,578
Pro forma 34,075 49,704 66,884
Income per share
before extraordinary item As reported $2.07 $1.84 $1.45
Pro forma 1.93 1.79 1.43
Income per share
before extraordinary item
- assuming dilution As reported $2.03 $1.83 $1.45
Pro forma 1.90 1.78 1.43
Net income As reported $36,510 $26,717 $67,578
Pro forma 34,075 25,157 66,884
Net income per share As reported $2.07 $ .96 $1.45
Pro forma 1.93 .90 1.43
Net income per share
- assuming dilution As reported $2.03 $ .95 $1.45
Pro forma 1.90 .90 1.43
31
The fair value of each stock option has been estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1998 1997 1996
---- ---- ----
Risk free interest rate 5.1% 5.4% 6.1%
Expected life 4 years 4 years 4 years
Expected volatility 30% 30.0% 30.0%
Expected dividend yield -- -- --
The weighted-average fair values of options granted during 1998, 1997 and
1996 were $16.69, $8.36 and $7.98, respectively.
Activity in the Company's Accumulated Other Comprehensive Income accounts
for 1996, 1997 and 1998 is as follows:
Cumulative
Cumulative Minimum Accumulated
Cumulative Appreciation Pension Other
Translation in Marketable Liability Comprehensive
Adjustment Securities Adjustment Income
---------- ---------- ---------- ------
Balance December 31, 1995 $(2,412) $ 4,772 $(7,571) $(5,211)
Translation adjustments 647 647
Change in appreciation in market
value of marketable securities
available-for-sale (1,085) (1,085)
Change in minimum pension
liability adjustment 1,762 1,762
------- ------- ------- -------
Balance December 31, 1996 (1,765) 3,687 (5,809) (3,887)
Translation adjustments (8,147) (8,147)
Change in appreciation in market
value of marketable securities
available-for-sale (1,140) (1,140)
Sale of available-for-sale
securities (2,547) (2,547)
Change in minimum pension
liability adjustment 5,809 5,809
------- ------- ------- -------
Balance December 31, 1997 (9,912) -- -- (9,912)
Translation adjustments 2,704 2,704
------- ------- ------- -------
Balance December 31, 1998 $(7,208) -- -- $(7,208)
======= ======= ======= =======
Note 7 - Leases
At December 31, 1998, the Company was committed under operating leases
which expire at various dates through 2008. Total rent expense under operating
leases for the years 1998, 1997, and 1996 was $13,927, $11,495 and $12,216
respectively.
Minimum lease payments under non-cancelable operating leases are as
follows:
1999 $12,535
2000 9,322
2001 6,586
2002 4,763
2003 2,857
Beyond 2003 2,109
-------
Total minimum obligation $38,172
=======
32
Note 8 - Reportable Business Segments and International Operations
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 primarily for communication
markets, including cable television. The accounting policies of the segments are
the same as those for the Company as a whole and are described in Note 1 herein.
The Company evaluates the performance of business units on, among other things,
profit or loss from operations before interest expense, goodwill and other
intangible amortization 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.
Interconnect products Cable
and assemblies products Total
------------------------------ ------------------------------ ------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Sales
- external $718,109 $679,887 $585,033 $200,768 $204,461 $191,188 $918,877 $884,348 $776,221
- intersegment 358 102 76 7,189 5,037 4,462 7,547 5,139 4,538
Depreciation and
amortization 18,235 15,029 13,110 3,039 2,960 2,306 21,274 17,989 15,416
Segment operating
income 135,739 132,520 102,937 31,880 39,313 43,818 167,619 171,833 146,755
Segment assets 311,892 256,380 232,765 55,119 58,743 51,129 367,011 315,123 283,894
Additions to property,
plant and equipment 22,483 21,275 17,654 3,834 2,666 3,388 26,317 23,941 21,042
Reconciliation of segment operating income to consolidated income before taxes
and extraordinary item:
1998 1997 1996
--------- --------- ---------
Segment operating income $ 167,619 $ 171,833 $ 146,755
Amortization of goodwill (11,701) (11,316) (10,962)
Interest expense (81,199) (64,713) (24,617)
Headquarters' expense and other net expenses (10,736) (8,630) (1,511)
--------- --------- ---------
Consolidated income before taxes
and extraordinary item $ 63,983 $ 87,174 $ 109,665
========= ========= =========
Reconciliation of segment assets to consolidated total assets:
1998 1997 1996
-------- -------- --------
Segment assets $367,011 $315,123 $283,894
Goodwill 360,265 339,223 346,583
Other unallocated assets 80,125 82,808 80,185
-------- -------- --------
Consolidated total assets $807,401 $737,154 $710,662
======== ======== ========
33
Geographic information:
Land and
Net Sales depreciable assets
----------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
United States $ 591,377 $ 581,278 $ 503,385 $ 70,072 $ 64,020 $ 60,413
Europe 245,057 230,923 233,670 43,301 36,519 33,761
Other 155,350 133,355 92,689 13,406 11,053 7,901
Eliminations (72,907) (61,208) (53,523)
--------- --------- --------- --------- --------- ---------
Total $ 918,877 $ 884,348 $ 776,221 $ 126,779 $ 111,592 $ 102,075
========= ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------
Revenues by geographic area are based on origin of shipment. The Company
had export sales from the United States operations of approximately $58,000,
$88,000 and $80,000 in 1998, 1997 and 1996, respectively.
Note 9 - Other Expenses, net
Other income (expense) is comprised as follows:
Year Ended December 31,
- ---------------------------------------------------------------------------
1998 1997 1996
------- ------- -------
Interest income $ 121 $ 234 $ 784
Foreign currency transaction gains 1,445 1,283 339
Program fees on sale of accounts receivable (4,121) (3,671) (3,504)
Minority interests (849) (1,042) (251)
Gain on sale of marketable securities 3,917
Agency and commitment fees (705) (678) (257)
Other (436) (1,104) (807)
------- ------- -------
$(4,545) $(1,061) $(3,696)
======= ======= =======
34
Note 10 - Commitments and Contingencies
In the course of pursuing its normal business activities, the Company is
involved in various legal proceedings and claims. Management does not expect
that amounts, if any, which may be required to be paid by reason of such
proceedings or claims will have a material effect on the Company's financial
position or results of operations.
Subsequent to the acquisition of Amphenol from Allied Signal Corporation
("Allied") in 1987, Amphenol and Allied have been named jointly and severally
liable as potentially responsible parties in relation to several environmental
cleanup sites. Amphenol and Allied have jointly consented to perform certain
investigations and remedial and monitoring activities at two sites and they have
been jointly ordered to perform work at another site. The responsibility for
costs incurred relating to these sites is apportioned between Amphenol and
Allied based on an agreement entered into in connection with the acquisition.
For sites covered by this agreement, to the extent that conditions or
circumstances occurred or existed at the time of or prior to the acquisition,
Allied is currently obligated to pay 80% of the costs up to $30,000 and 100% of
the costs in excess of $30,000. At December 31, 1998, approximately $15,000 of
total costs have been incurred applicable to this agreement. Management does not
believe that the costs associated with resolution of these or any other
environmental matters will have a material adverse effect on the Company's
financial condition or results of operations.
A subsidiary of the Company has an agreement with a financial institution
whereby the subsidiary can sell an undivided interest of up to $60,000 in a
designated pool of qualified accounts receivable. The agreement expires in May
2004. Under the terms of the agreement, new receivables are added to the pool as
collections reduce previously sold accounts receivable. The Company services,
administers and collects the receivables on behalf of the purchaser. Fees
payable to the purchaser under this agreement are equivalent to rates afforded
high quality commercial paper issuers plus certain administrative expenses and
are included in other expenses, net, in the accompanying Consolidated Statement
of Income. The agreement contains certain covenants and provides for various
events of termination. In certain circumstances the Company is contingently
liable for the collection of the receivables sold; management believes that its
allowance for doubtful accounts is adequate to absorb the expense of any such
liability. At December 31, 1998 and 1997, approximately $60,000 in receivables
were sold under the agreement and are therefore not reflected in the accounts
receivable balance in the accompanying Consolidated Balance Sheet.
Note 11 - Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and short-term cash investments: The carrying amount approximates
fair value because of the short maturity of those instruments.
Long-term debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities. At December 31, 1998 and 1997, based on market quotes for the same
or similar securities it is estimated that the Company's 9 7/8% Subordinated
Debentures were trading at a premium of 5% over book value. The book value of
the Company's other long-term debt approximates fair value.
Investments: The Company periodically uses derivative financial
instruments. The instruments are primarily used to manage defined interest rate
risk, and to a lesser extent foreign exchange and commodity risks arising out of
the Company's core activities. In 1997, the Company entered into interest rate
swaps to limit exposure to interest rate fluctuations on the Company's floating
rate bank debt. At December 31, 1998 and 1997, the Company had $450,000 of
interest rate swaps outstanding as described in Note 3. While it is not the
Company's intention to terminate the interest rate swap agreements, the fair
values were estimated by obtaining quotes from brokers which represented the
amounts that the Company would receive or pay if the agreements were terminated.
These fair values indicated that termination of the agreements at December 31,
1998 and 1997 would have resulted in a pretax loss of $12,829 and $3,085,
respectively. Due to the volatility of interest rates, these estimated results
may or may not be realized.
The Company does not utilize financial instruments for trading or other
speculative purposes. It is estimated that the carrying value of the Company's
other financial instruments at December 31, 1998 and 1997 approximates fair
value.
35
Note 12 - Selected Quarterly Financial Data (Unaudited)
Three Months Ended
- -----------------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------
1998
Net sales $228,541 $227,942 $229,018 $233,376
Gross profit, including depreciation 74,397 74,621 72,813 72,892
Net income 9,673 10,355 8,212 8,270
Net income per share .55 .59 .46 .46
Net income per share assuming dilution .54 .58 .46 .46
Stock price - High 64 61 5/8 44 1/8 35 1/16
- Low 53 1/4 39 29 13/16 27 1/2
1997
Net sales $211,773 $226,996 $223,494 $222,085
Gross profit, including depreciation 69,583 75,682 74,002 74,069
Income before extraordinary items 17,497 15,774 8,559 9,434
Income per share before extraordinary item .39 .50 .49 .54
Income per share before extraordinary item
assuming dilution .39 .49 .48 .53
Net income (loss) 17,497 2,929 8,559 (2,268)
Net income (loss) per share .39 .09 .49 (.13)
Net income (loss) per share assuming dilution .39 .09 .48 (.13)
Stock price - High 26 38 7/8 43 1/2 56
- Low 21 3/4 24 1/8 39 1/16 44
1996
Net sales $194,822 $198,921 $184,876 $197,602
Gross profit, including depreciation 66,639 67,816 63,523 66,539
Net income 16,940 17,408 16,697 16,533
Net income per share (1) .36 .37 .36 .37
Stock price - High 26 27 5/8 22 7/8 23
- Low 20 1/8 19 7/8 18 3/4 19
- -----------------------------------------------------------------------------------------------------------
(1) Net income per share assuming dilution is equal to net income per share.
36
Item 9. Changes in and Disagreements with Independent Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to Instruction G(3) to Form 10-K, the information required by
Item 10 with respect to the Directors of the Registrant is incorporated by
reference from the Company's definitive proxy statement which is expected to be
filed pursuant to Regulation 14A within 120 days following the end of the fiscal
year covered by this report.
The information required by Item 10 with respect to the Executive Officers
of the Registrant has been included in Part I of this Form 10-K in reliance on
Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K.
Item 11. Executive Compensation
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 11 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 12 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 13 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements Page
Report of Management 19
Independent Auditors' Reports 19
Consolidated Statement of Income -
Years Ended December 31, 1998, December 31, 1997, and December 31, 1996 20
Consolidated Balance Sheet -
December 31, 1998 and December 31, 1997 21
Consolidated Statement of Changes in Shareholders' Equity (Deficit) -
Years Ended December 31, 1998, December 31, 1997, and
December 31, 1996 22
Consolidated Statement of Cash Flow -
Years Ended December 31, 1998, December 31, 1997, and December 31, 1996 23
Notes to Consolidated Financial Statements 24
(a)(2) Financial Statement Schedules for the Three Years Ended December 31, 1998
All financial statement schedules are omitted because they are not applicable or
required, or because the required information is included in the consolidated
financial statements or notes thereto.
38
(a) Listing of Exhibits
2.1 Agreement and Plan of Merger dated as of January 23, 1997 between NXS
Acquisition Corp. and Amphenol Corporation (incorporated by reference to
Current Report on Form 8-K dated January 23, 1997).*
2.2 Amendment, dated as of April 9, 1997, to the Agreement and Plan of Merger
between NXS Acquisition Corp. and Amphenol Corporation, dated as of
January 23, 1997 (incorporated by reference to the Registration Statement
on Form S-4 (registration No. 333-25195) filed on April 15, 1997).*
3.1 Certificate of Merger, dated May 19, 1997 (including Restated Certificate
of Incorporation of Amphenol Corporation) (filed as Exhibit 3.1 to the
June 30, 1997 10-Q).*
3.2 By-Laws of the Company as of May 19, 1997 - NXS Acquisition Corp. By-Laws
(filed as Exhibit 3.2 to the June 30, 1997 10-Q).*
4.1 Indenture between Amphenol Corporation and IBJ Schroeder Bank and Trust
Company, as Trustee, dated as of May 19, 1997, relating to Senior
Subordinated Notes due 2007 (filed as Exhibit 4.1 to the June 30, 1997
10-Q).*
10.1 Amended and Restated Receivables Purchase Agreement dated as of May 19,
1997 among Amphenol Funding Corp., the Company, Pooled Accounts Receivable
Capital Corporation and Nesbitt Burns Securities, Inc., as Agent (filed as
Exhibit 10.1 to the June 30, 1997 10-Q).*
10.2 Amended and Restated Purchase and Sale Agreement dated as of May 19, 1997
among the Originators named therein, Amphenol Funding Corp. and the
Company (filed as Exhibit 10.2 to the June 30, 1997 10-Q).*
10.3 Credit Agreement dated as of May 19, 1997 among the Company, Amphenol
Holding UK, Limited, Amphenol Commercial and Industrial UK, Limited, the
Lenders listed therein, The Chase Manhattan Bank, as Syndication Agent,
the Bank of New York, as Documentation Agent and Bankers Trust Company, as
Administrative Agent and Collateral Agent (filed as Exhibit 10.3 to the
June 30, 1997 10-Q).*
Management Contracts and Compensatory Plans (Exhibit 10.4 through 10.11).
10.4 1997 Amphenol Incentive Plan (filed as Exhibit 10.13 to the 1996 10-K).*
10.5 1998 Amphenol Incentive Plan (filed as Exhibit 10.5 to the December 31,
1997 10-K).*
10.6 1999 Amphenol Incentive Plan.
10.7 Pension Plan for Employees of Amphenol Corporation as amended and restated
effective December 31, 1997.
- ----------
* Incorporated herein by reference as stated.
39
10.8 First amendment to the Pension Plan for Employees of Amphenol Corporation
dated October 1, 1998.
10.9 Second Amendment to the Pension Plan for Employees of Amphenol Corporation
dated February 4, 1999.
10.10 Amphenol Corporation Supplemental Employee Retirement Plan formally
adopted effective January 25, 1996 (filed as Exhibit 10.18 to the 1996
10-K).*
10.11 LPL Technologies Inc. and Affiliated Companies Employee Savings/401 (k)
Plan, dated and adopted January 23, 1990 (filed as Exhibit 10.19 to the
1991 Registration Statement).*
10.12 Management Agreement between the Company and Dr. Martin H. Loeffler, dated
July 28, 1987 (filed as Exhibit 10.7 to the 1987 Registration Statement).*
10.13 Amphenol Corporation Directors' Deferred Compensation Plan (filed as
Exhibit 10.11 to the December 31, 1997 10-K).*
10.14 Agreement and Plan of Merger among Amphenol Acquisition Corporation,
Allied Corporation and the Company, dated April 1, 1987, and the Amendment
thereto dated as of May 15, 1987 (filed as Exhibit 2 to the 1987
Registration Statement).*
10.15 Settlement Agreement among Allied Signal Inc., the Company and LPL
Investment Group, Inc. dated November 28, 1988 (filed as Exhibit 10.20 to
the 1991 Registration Statement).*
10.16 Registration Rights Agreement dated as of May 19, 1997, among NXS
Acquisition Corp., KKR 1996 Fund L.P., NXS Associates L.P., KKR Partners
II, L.P. and NXS I, L.L.C. (filed as Exhibit 99.5 to Schedule 13D,
Amendment No. 1, relating to the beneficial ownership of shares of the
Company's Common Stock by NXS I, L.L.C., KKR 1996 Fund, L.P., KKR
Associates (1996) L.P., KKR 1996 GP LLC, KKR Partners II, L.P., KKR
Associates L.P., NXS Associates L.P., KKR Associates (NXS) L.P., and
KKR-NXS L.L.C. dated May 27, 1997).*
10.17 Management Stockholder's Agreement entered into as of May 19, 1997 between
the Company and Martin H. Loeffler (filed as Exhibit 10.13 to the June 30,
1997 10-Q).*
10.18 Management Stockholder's Agreement entered into as of May 19, 1997 between
the Company and Edward G. Jepsen (filed as Exhibit 10.14 to the June 30,
1997 10-Q).*
10.19 Management Stockholder's Agreement entered into as of May 19, 1997 between
the Company and Timothy F. Cohane (filed as Exhibit 10.15 to the June 30,
1997 10-Q).*
10.20 1997 Option Plan for Key Employees of Amphenol and Subsidiaries (filed as
Exhibit 10.16 to the June 30, 1997 10-Q).*
10.21 Amended 1997 Option Plan for Key Employees of Amphenol and Subsidiaries
(filed as Exhibit 10.19 to the June 30, 1998 10-Q).*
- ----------
* Incorporated herein by reference as stated.
40
10.22 Non-Qualified Stock Option Agreement between the Company and Martin H.
Loeffler dated as of May 19, 1997 (filed as Exhibit 10.17 to the June 30,
1997 10-Q).*
10.23 Non-Qualified Stock Option Agreement between the Company and Edward G.
Jepsen dated as of May 19,1997 (filed as Exhibit 10.18 to the June 30,
1997 10-Q).*
10.24 Non-Qualified Stock Option Agreement between the Company and Timothy F.
Cohane dated as of May 19, 1997 (filed as Exhibit 10.19 to the June 30,
1997 10-Q).*
10.25 First Amendment to Amended and Restated Receivables Purchase Agreement
dated as of September 26,1997 (filed as Exhibit 10.20 to the September 30,
1997 10-Q).*
10.26 Canadian Purchase and Sale Agreement dated as of September 26, 1997 among
Amphenol Canada Corp., Amphenol Funding Corp. and Amphenol Corporation,
individually and as the initial servicer (filed as Exhibit 10.21 to the
September 30,1997 10-Q).*
10.27 Amended and Restated Credit Agreement dated as of October 3, 1997 among
the Company, Amphenol Holding UK, Limited, Amphenol Commercial and
Industrial UK, Limited, the Lenders listed therein, The Chase Manhattan
Bank, as Syndication Agent, the Bank of New York, as Documentation Agent
and Bankers Trust Company, as Administrative Agent and Collateral Agent
(filed as Exhibit 10.22 to the September 30, 1997 10-Q).*
10.28 First Amendment dated as of May 1, 1998 to the Amended and Restated Credit
Agreement dated as of October 3, 1997 among the Company, Amphenol Holding
UK, Limited, Amphenol Commercial and Industrial UK, Limited, the Lenders
listed therein, the Chase Manhattan Bank, as Syndication Agent, the Bank
of New York, as Documentation Agent and Bankers Trust Company, as
Administrative Agent and Collateral Agent (filed as Exhibit 10.25 to the
March 31, 1998 10-Q).*
11 Statement regarding computation of per share earnings.
12 Statement regarding computation of ratio of earnings to fixed charges.
16 Letter regarding change in Certifying Accountant (filed as Exhibit 16 to
the June 20, 1997 Current Report on Form 8-K).*
21 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
- ----------
* Incorporated herein by reference as stated.
41
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the Town of
Wallingford, State of Connecticut on the 29th day of March 1999.
AMPHENOL CORPORATION
/s/ Martin H. Loeffler
---------------------------------
Martin H. Loeffler
Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the date indicated below.
Signature Title Date
/s/ Martin H. Loeffler Chairman, Chief March 29, 1999
Martin H. Loeffler Executive Officer
and President
(Principal Executive Officer)
/s/ Edward G. Jepsen Chief Financial Officer March 29, 1999
Edward G. Jepsen (Principal Financial Officer and
Principal Accounting Officer)
/s/ Andrew Clarkson Director March 29, 1999
/s/ G. Robert Durham Director March 29, 1999
/s/ Henry R. Kravis Director March 29, 1999
/s/ Marc S. Lipschultz Director March 29, 1999
/s/ Michael W. Michelson Director March 29, 1999
/s/ George R. Roberts Director March 29, 1999
42