UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
For the quarterly period ended September 30, 2008
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
AMPHENOL CORPORATION
Delaware |
| 22-2785165 |
(State of Incorporation) |
| (IRS Employer |
Identification No.) |
358 Hall Avenue
Wallingford, Connecticut 06492
203-265-8900
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x, Accelerated filer o, Non-accelerated filer o, Smaller reporting company o.
Large accelerated filer x | Accelerated filer o | |
Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x
As of October 31, 2008,April 30, 2009, the total number of shares outstanding of Class A Common Stock was 175,780,409.171,288,934.
Amphenol Corporation
Index to Quarterly Report
on Form 10-Q
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| Page | |
Part I | Financial Information |
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Item 1. | Financial Statements: |
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| Condensed Consolidated Balance Sheets |
| 3 | |
| Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2009 and |
| 4 | |
| Condensed Consolidated Statements of Cash Flow for the |
| 5 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) |
| 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
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18 | ||||
Part II | Other Information |
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Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Submission of Matters to a Vote of Security Holders |
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Item 5. | Other Information |
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Item 6. | Exhibits |
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20 | ||||
Signature |
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| 22 |
2
PART I –— FINANCIAL INFORMATION
Item 1. Financial Statements
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
Assets |
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Current Assets: |
|
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Cash and cash equivalents |
| $ | 230,741 |
| $ | 183,641 |
|
| $ | 150,519 |
| $ | 214,987 |
|
Accounts receivable, less allowance for doubtful accounts of $13,944 and $12,468, respectively |
| 583,663 |
| 510,411 |
| |||||||||
Accounts receivable, less allowance for doubtful accounts of $18,222 and $14,982, respectively |
| 459,463 |
| 515,999 |
| |||||||||
Inventories, net |
| 521,859 |
| 456,882 |
|
| 479,704 |
| 512,507 |
| ||||
Other current assets |
| 95,364 |
| 72,874 |
|
| 88,144 |
| 92,371 |
| ||||
Total current assets |
| 1,431,627 |
| 1,223,808 |
|
| 1,177,830 |
| 1,335,864 |
| ||||
Land and depreciable assets, less accumulated depreciation of $515,681 and $483,296, respectively |
| 336,418 |
| 316,194 |
| |||||||||
Land and depreciable assets, less accumulated depreciation of $516,091 and $510,764 respectively |
| 345,606 |
| 344,515 |
| |||||||||
Goodwill |
| 1,189,788 |
| 1,091,828 |
|
| 1,334,948 |
| 1,232,335 |
| ||||
Other long-term assets |
| 60,405 |
| 43,903 |
|
| 101,277 |
| 81,445 |
| ||||
|
| $ | 3,018,238 |
| $ | 2,675,733 |
|
| $ | 2,959,661 |
| $ | 2,994,159 |
|
Liabilities & Shareholders’ Equity |
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Current Liabilities: |
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Accounts payable |
| $ | 345,193 |
| $ | 295,391 |
|
| $ | 257,196 |
| $ | 305,950 |
|
Accrued salaries, wages and employee benefits |
| 60,956 |
| 54,963 |
|
| 59,401 |
| 59,644 |
| ||||
Accrued income taxes |
| 46,956 |
| 39,627 |
|
| 59,086 |
| 65,846 |
| ||||
Accrued acquisition-related obligations |
| 91,670 |
| 55,212 |
|
| 17,590 |
| 120,357 |
| ||||
Other accrued expenses |
| 69,566 |
| 74,213 |
|
| 76,104 |
| 82,596 |
| ||||
Current portion of long-term debt |
| 481 |
| 1,075 |
| |||||||||
Current portion of long-term debt and capital lease obligations |
| 497 |
| 439 |
| |||||||||
Total current liabilities |
| 614,822 |
| 520,481 |
|
| 469,874 |
| 634,832 |
| ||||
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| |||||||||
Long-term debt |
| 770,050 |
| 721,561 |
| |||||||||
Accrued pension and post employment benefit obligations |
| 86,137 |
| 101,804 |
| |||||||||
Long-term debt and capital lease obligations |
| 870,982 |
| 786,020 |
| |||||||||
Accrued pension and post-employment benefit obligations |
| 161,177 |
| 161,669 |
| |||||||||
Other long-term liabilities |
| 83,657 |
| 66,973 |
|
| 38,515 |
| 43,069 |
| ||||
Shareholders’ Equity: |
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| ||||
Common stock |
| 178 |
| 181 |
|
| 172 |
| 171 |
| ||||
Additional paid-in capital (deficit) |
| 18,195 |
| (43,647 | ) | |||||||||
Additional paid-in capital |
| 27,909 |
| 22,746 |
| |||||||||
Accumulated earnings |
| 1,540,360 |
| 1,431,635 |
|
| 1,538,941 |
| 1,467,099 |
| ||||
Accumulated other comprehensive loss |
| (75,653 | ) | (43,644 | ) |
| (166,972 | ) | (140,591 | ) | ||||
Treasury stock, at cost |
| (19,508 | ) | (79,611 | ) | |||||||||
Total shareholders’ equity |
| 1,463,572 |
| 1,264,914 |
| |||||||||
Total shareholders’ equity attributable to Amphenol Corporation |
| 1,400,050 |
| 1,349,425 |
| |||||||||
Noncontrolling interests |
| 19,063 |
| 19,144 |
| |||||||||
Total equity |
| 1,419,113 |
| 1,368,569 |
| |||||||||
|
| $ | 3,018,238 |
| $ | 2,675,733 |
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|
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| ||
|
| $ | 2,959,661 |
| $ | 2,994,159 |
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See accompanying notes to condensed consolidated financial statements.
3
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except per share data)
|
| Three months ended |
| Nine months ended |
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|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
|
| Three months ended |
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| 2009 |
| 2008 |
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Net sales |
| $ | 863,658 |
| $ | 733,851 |
| $ | 2,481,189 |
| $ | 2,073,771 |
|
| $ | 660,012 |
| $ | 770,714 |
|
Cost of sales |
| 582,407 |
| 494,709 |
| 1,672,442 |
| 1,398,437 |
|
| 453,633 |
| 519,808 |
| ||||||
Gross profit |
| 281,251 |
| 239,142 |
| 808,747 |
| 675,334 |
|
| 206,379 |
| 250,906 |
| ||||||
Selling, general and administrative expense |
| 109,931 |
| 95,792 |
| 318,908 |
| 275,974 |
|
| 95,694 |
| 100,610 |
| ||||||
Operating income |
| 171,320 |
| 143,350 |
| 489,839 |
| 399,360 |
|
| 110,685 |
| 150,296 |
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Interest expense |
| (9,772 | ) | (9,371 | ) | (29,586 | ) | (27,392 | ) |
| (8,998 | ) | (9,899 | ) | ||||||
Other expenses, net |
| (3,348 | ) | (4,678 | ) | (7,784 | ) | (11,466 | ) |
| (215 | ) | (482 | ) | ||||||
Income before income taxes |
| 158,200 |
| 129,301 |
| 452,469 |
| 360,502 |
|
| 101,472 |
| 139,915 |
| ||||||
Provision for income taxes |
| (24,422 | ) | (40,784 | ) | |||||||||||||||
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Provision for income taxes |
| (45,245 | ) | (37,800 | ) | (132,051 | ) | (107,301 | ) | |||||||||||
Net income |
| $ | 112,955 |
| $ | 91,501 |
| $ | 320,418 |
| $ | 253,201 |
|
| 77,050 |
| 99,131 |
| ||
Less: Net income attributable to noncontrolling interests |
| (2,640 | ) | (1,663 | ) | |||||||||||||||
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Net income attributable to Amphenol Corporation |
| $ | 74,410 |
| $ | 97,468 |
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Net income per common share-Basic |
| $ | .64 |
| $ | .51 |
| $ | 1.82 |
| $ | 1.42 |
|
| $ | .43 |
| $ | .55 |
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Average common shares outstanding-Basic |
| 176,716,395 |
| 178,405,425 |
| 176,290,446 |
| 178,388,446 |
|
| 171,185,198 |
| 176,662,616 |
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Net income per common share-Diluted |
| $ | .63 |
| $ | .50 |
| $ | 1.78 |
| $ | 1.39 |
|
| $ | .43 |
| $ | .54 |
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| ||||||
Average common shares outstanding-Diluted |
| 180,134,110 |
| 182,210,197 |
| 179,910,090 |
| 182,467,606 |
|
| 173,098,475 |
| 180,197,969 |
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Dividends declared per common share |
| $ | .015 |
| $ | .015 |
| $ | .045 |
| $ | .045 |
|
| $ | .015 |
| $ | .015 |
|
See accompanying notes to condensed consolidated financial statements.
4
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(dollars in thousands)
|
| Nine months ended |
|
| Three months ended |
| ||||||||
|
| 2008 |
| 2007 |
|
| 2009 |
| 2008 |
| ||||
Net income |
| $ | 320,418 |
| $ | 253,201 |
|
| $ | 77,050 |
| $ | 99,131 |
|
Adjustments for cash from operations: |
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| ||||
Depreciation and amortization |
| 69,019 |
| 60,933 |
|
| 22,991 |
| 22,771 |
| ||||
Stock-based compensation expense |
| 11,777 |
| 9,265 |
|
| 4,784 |
| 3,202 |
| ||||
Net change in receivables sold |
| 6,000 |
| — |
| |||||||||
Net change in components of working capital |
| (91,365 | ) | (65,231 | ) |
| 34,255 |
| (18,888 | ) | ||||
Net change in other long term assets and liabilities |
| 835 |
| (3,292 | ) | |||||||||
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| |||||||||
Net change in other long-term assets and liabilities |
| (2,315 | ) | 3,400 |
| |||||||||
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| |||||||||
Cash flow provided by operations |
| 310,684 |
| 254,876 |
|
| 142,765 |
| 109,616 |
| ||||
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Cash flow from investing activities: |
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Capital additions, net |
| (83,044 | ) | (75,803 | ) |
| (16,871 | ) | (19,914 | ) | ||||
Purchase of short-term investments |
| (13,996 | ) | (4,634 | ) | |||||||||
Sale (purchase) of short-term investments |
| 1,420 |
| (4,162 | ) | |||||||||
Investments in acquisitions |
| (100,373 | ) | (69,362 | ) |
| (261,464 | ) | (70,443 | ) | ||||
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Cash flow used in investing activities |
| (197,413 | ) | (149,799 | ) |
| (276,915 | ) | (94,519 | ) | ||||
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Cash flow from financing activities: |
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| ||||
Net change in borrowings under revolving credit facilities |
| 46,111 |
| 36,157 |
|
| 85,887 |
| 127,106 |
| ||||
Purchase of treasury stock |
| (143,693 | ) | (87,080 | ) |
| — |
| (143,693 | ) | ||||
Proceeds from exercise of stock options |
| 26,909 |
| 25,461 |
|
| 224 |
| 367 |
| ||||
Excess tax benefits from stock-based payment arrangements |
| 21,267 |
| 18,873 |
|
| 107 |
| 270 |
| ||||
Dividend payments |
| (10,617 | ) | (8,036 | ) |
| (5,135 | ) | (2,682 | ) | ||||
Cash flow used in financing activities |
| (60,023 | ) | (14,625 | ) | |||||||||
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Cash flow provided by (used in) financing activities |
| 81,083 |
| (18,632 | ) | |||||||||
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Effect of exchange rate changes on cash and cash equivalents |
| (6,148 | ) | — |
|
| (11,401 | ) | 49 |
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Net change in cash and cash equivalents |
| 47,100 |
| 90,452 |
|
| (64,468 | ) | (3,486 | ) | ||||
Cash and cash equivalents balance, beginning of period |
| 183,641 |
| 74,135 |
|
| 214,987 |
| 183,641 |
| ||||
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Cash and cash equivalents balance, end of period |
| $ | 230,741 |
| $ | 164,587 |
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| $ | 150,519 |
| $ | 180,155 |
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Cash paid during the period for: |
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Interest |
| $ | 29,447 |
| $ | 26,791 |
|
| $ | 9,112 |
| $ | 10,006 |
|
Income taxes |
| 99,910 |
| 74,306 |
|
| 27,488 |
| 21,610 |
|
See accompanying notes to condensed consolidated financial statements.
5
AMPHENOL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands, except per share data)
Note 1-Principles of Consolidation and Interim Financial Statements
The condensed consolidated balance sheets as of September 30, 2008March 31, 2009 and December 31, 2007,2008 and the related condensed consolidated statements of income for the three and nine months ended September 30, 2008 and 2007 and the condensed consolidated statements of cash flow for the ninethree months ended September 30,March 31, 2009 and 2008 and 2007 include the accounts of Amphenol Corporation and its subsidiaries (the “Company”). The financial statements included herein are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such interim financial statements have been included. The results of operations for the three and nine months ended September 30, 2008March 31, 2009 are not necessarily indicative of the results to be expected for the full year. These financial statements and the related notes should be read in conjunction with the financial statements and notes included in the Company’s 20072008 Annual Report on Form 10-K.
Note 2-Inventories
Inventories, net, consist of:
|
| September 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||
Raw materials and supplies |
| $ | 137,062 |
| $ | 112,488 |
|
| $ | 126,269 |
| $ | 130,572 |
|
Work in process |
| 240,344 |
| 227,293 |
|
| 224,201 |
| 233,003 |
| ||||
Finished goods |
| 144,453 |
| 117,101 |
|
| 129,234 |
| 148,932 |
| ||||
|
| $ | 521,859 |
| $ | 456,882 |
|
| $ | 479,704 |
| $ | 512,507 |
|
Note 3-Reportable Business Segments
The Company has two reportable business segments: (i) interconnect productsInterconnect Products and assembliesAssemblies and (ii) cable products.Cable Products. The interconnect productsInterconnect Products and assemblies (“Interconnect”)Assemblies segment produces connectors and connector assemblies primarily for the communications, military, aerospace, industrial and automotive markets. The cable products (“Cable”)Cable Products segment produces coaxial and flat ribbon cable and related products primarily for the communications markets, including cable television. The accounting policies of the segments are the same as those for the Company as a whole. The Company evaluates the performance of its business segments on, among other things, profit or loss from operations before interest, headquarters’headquarters expense allocations, stock-based compensation expense, income taxes, amortization related to certain intangible assets and nonrecurring gains and losses.
The segment results for the three months ended September 30,March 31, 2009 and 2008 and 2007 are as follows:
|
| Interconnect products |
| Cable |
| Total |
|
| Interconnect Products |
| Cable |
| Total |
| ||||||||||||||||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||||||||||
Net sales |
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-external |
| $ | 786,177 |
| $ | 659,343 |
| $ | 77,481 |
| $ | 74,508 |
| $ | 863,658 |
| $ | 733,851 |
|
| $ | 601,958 |
| $ | 700,625 |
| $ | 58,054 |
| $ | 70,089 |
| $ | 660,012 |
| $ | 770,714 |
|
-inter-segment |
| 944 |
| 935 |
| 4,577 |
| 3,582 |
| 5,521 |
| 4,517 |
|
| 642 |
| 882 |
| 2,105 |
| 4,101 |
| 2,747 |
| 4,983 |
| ||||||||||||
Segment operating income |
| 175,525 |
| 144,453 |
| 8,532 |
| 9,471 |
| 184,057 |
| 153,924 |
|
| 116,443 |
| 153,536 |
| 7,836 |
| 8,270 |
| 124,279 |
| 161,806 |
|
6
The segment results for the nine months ended September 30, 2008 and 2007 are as follows:
|
| Interconnect products |
| Cable |
| Total |
| ||||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
-external |
| $ | 2,257,914 |
| $ | 1,862,858 |
| $ | 223,275 |
| $ | 210,913 |
| $ | 2,481,189 |
| $ | 2,073,771 |
|
-inter-segment |
| 2,988 |
| 3,122 |
| 12,648 |
| 10,845 |
| 15,636 |
| 13,967 |
| ||||||
Segment operating income |
| 500,686 |
| 403,546 |
| 25,531 |
| 26,324 |
| 526,217 |
| 429,870 |
| ||||||
ReconciliationA reconciliation of segment operating income to consolidated income before income taxes for the three and nine months ended September 30,March 31, 2009 and 2008 and 2007 is summarized as follows:
|
| Three months ended |
| Nine months ended |
| |||||||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
|
| 2009 |
| 2008 |
| ||||||
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| ||||||
Segment operating income |
| $ | 184,057 |
| $ | 153,924 |
| $ | 526,217 |
| $ | 429,870 |
|
| $ | 124,279 |
| $ | 161,806 |
|
Interest expense |
| (9,772 | ) | (9,371 | ) | (29,586 | ) | (27,392 | ) |
| (8,998 | ) | (9,899 | ) | ||||||
Other expenses, net |
| (11,504 | ) | (11,979 | ) | (32,385 | ) | (32,711 | ) |
| (9,025 | ) | (8,790 | ) | ||||||
Stock-based compensation expense |
| (4,581 | ) | (3,273 | ) | (11,777 | ) | (9,265 | ) |
| (4,784 | ) | (3,202 | ) | ||||||
Income before income taxes |
| $ | 158,200 |
| $ | 129,301 |
| $ | 452,469 |
| $ | 360,502 |
|
| $ | 101,472 |
| $ | 139,915 |
|
Note 4-Comprehensive Income4-Noncontrolling Interests
Effective January 1, 2009, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Financial Statements” (“SFAS 160”). SFAS 160 requires companies to classify expense related to noncontrolling interests’ share in income below net income (earnings per share will still be determined after the impact of the noncontrolling interests’ share in net income of the Company). In addition, SFAS 160 requires the liability related to noncontrolling interests to be presented as a separate caption within equity. The presentation and disclosure requirements of SFAS 160 were retroactively applied.
Total comprehensive incomeA reconciliation of consolidated changes in equity for the three and nine months ended September 30, 2008 and 2007March 31, 2009 is summarized as follows:
|
| Three months ended |
| Nine months ended |
|
| Amphenol Corporation Shareholders |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
|
| Common |
| Additional Paid |
| Accumulated |
| Accum. Other |
| Noncontrolling |
| Comprehensive |
| Total |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
| Stock |
| In Capital |
| Earnings |
| Loss |
| Interests |
| Income |
| Equity |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance as of December 31, 2008 |
| $ | 171 |
| $ | 22,746 |
| $ | 1,467,099 |
| $ | (140,591 | ) | $ | 19,144 |
|
|
| $ | 1,368,569 |
| ||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net income |
| $ | 112,955 |
| $ | 91,501 |
| $ | 320,418 |
| $ | 253,201 |
|
|
|
|
|
| 74,410 |
|
|
| 2,640 |
| $ | 77,050 |
| 77,050 |
| ||||||
Currency translation adjustments |
| (42,982 | ) | 10,826 |
| (30,562 | ) | 19,725 |
| ||||||||||||||||||||||||||
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Translation adjustments |
|
|
|
|
|
|
| (28,565 | ) | (1,467 | ) | (30,032 | ) | (30,032 | ) | ||||||||||||||||||||
Revaluation of interest rate derivatives |
| 415 |
| (2,127 | ) | (1,080 | ) | (2,414 | ) |
|
|
|
|
|
|
| 2,460 |
|
|
| 2,460 |
| 2,460 |
| |||||||||||
Defined benefit plan liability adjustment |
| (367 | ) | — |
| (367 | ) | — |
|
|
|
|
|
|
|
| (276 | ) |
|
| (276 | ) | (276 | ) | |||||||||||
Total comprehensive income |
| $ | 70,021 |
| $ | 100,200 |
| $ | 288,409 |
| $ | 270,512 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 49,202 |
|
|
| ||||||
Payments to shareholders of noncontrolling interest |
|
|
|
|
|
|
|
|
| (1,254 | ) |
|
| (1,254 | ) | ||||||||||||||||||||
Stock options exercised, including tax benefit |
| 1 |
| 340 |
|
|
|
|
|
|
|
|
| 341 |
| ||||||||||||||||||||
Stock compensation |
|
|
| 39 |
|
|
|
|
|
|
|
|
| 39 |
| ||||||||||||||||||||
Dividends declared |
|
|
|
|
| (2,568 | ) |
|
|
|
|
|
| (2,568 | ) | ||||||||||||||||||||
Stock-based compensation expense |
|
|
| 4,784 |
|
|
|
|
|
|
|
|
| 4,784 |
| ||||||||||||||||||||
Balance as of March 31, 2009 |
| $ | 172 |
| $ | 27,909 |
| $ | 1,538,941 |
| $ | (166,972 | ) | $ | 19,063 |
|
|
| $ | 1,419,113 |
|
7
A reconciliation of consolidated changes in equity for the three months ended March 31, 2008 is as follows:
|
| Amphenol Corporation Shareholders |
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Common |
| Additional Paid |
| Accumulated |
| Accum. Other |
| Treasury |
| Noncontrolling |
| Comprehensive |
| Total |
| ||||||||
|
| Stock |
| In (Deficit) Capital |
| Earnings |
| Loss |
| Stock |
| Interests |
| Income |
| Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance as of December 31, 2007 |
| $ | 181 |
| $ | (43,647 | ) | $ | 1,431,635 |
| $ | (43,644 | ) | $ | (79,611 | ) | $ | 14,834 |
|
|
| $ | 1,279,748 |
| |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income |
|
|
|
|
| 97,468 |
|
|
|
|
| 1,663 |
| $ | 99,131 |
| 99,131 |
| |||||||
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Translation adjustments |
|
|
|
|
|
|
| 14,750 |
|
|
| 419 |
| 15,169 |
| 15,169 |
| ||||||||
Revaluation of interest rate derivatives |
|
|
|
|
|
|
| (9,828 | ) |
|
|
|
| (9,828 | ) | (9,828 | ) | ||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 104,472 |
|
|
| |||||||
Retirement of treasury stock |
| (5 | ) |
|
| (203,791 | ) |
|
| 203,796 |
|
|
|
|
| — |
| ||||||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
| (143,693 | ) |
|
|
|
| (143,693 | ) | ||||||||
Stock options exercised, including tax benefit |
|
|
| 623 |
|
|
|
|
|
|
|
|
|
|
| 623 |
| ||||||||
Stock compensation |
|
|
| 53 |
|
|
|
|
|
|
|
|
|
|
| 53 |
| ||||||||
Dividends declared |
|
|
|
|
| (2,601 | ) |
|
|
|
|
|
|
|
| (2,601 | ) | ||||||||
Stock-based compensation expense |
|
|
| 3,202 |
|
|
|
|
|
|
|
|
|
|
| 3,202 |
| ||||||||
Balance as of March 31, 2008 |
| $ | 176 |
| $ | (39,769 | ) | $ | 1,322,711 |
| $ | (38,722 | ) | $ | (19,508 | ) | $ | 16,916 |
|
|
| $ | 1,241,804 |
|
Note 5-Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted EPS is computed by dividing net income by the weighted-average number of common shares and dilutive common shares outstanding, which includesrelates to stock options. A reconciliation of the basic average common shares outstanding to diluted average common shares outstanding as of September 30,March 31, 2009 and 2008 is as follows (dollars in thousands, except per share data)amounts):
|
| 2009 |
| 2008 |
| ||
Net income attributable to Amphenol Corporation |
| $ | 74,410 |
| $ | 97,468 |
|
Basic average common shares outstanding |
| 171,185,198 |
| 176,662,616 |
| ||
Effect of dilutive stock options |
| 1,913,277 |
| 3,535,353 |
| ||
Diluted average common shares outstanding |
| 173,098,475 |
| 180,197,969 |
| ||
Earnings per share: |
|
|
|
|
| ||
Basic |
| $ | .43 |
| $ | .55 |
|
Diluted |
| $ | .43 |
| $ | .54 |
|
7
|
| Three months ended |
| Nine months ended |
| ||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
Net income |
| $ | 112,955 |
| $ | 91,501 |
| $ | 320,418 |
| $ | 253,201 |
|
Basic average common shares outstanding |
| 176,716,395 |
| 178,405,425 |
| 176,290,446 |
| 178,388,446 |
| ||||
Effect of dilutive stock options |
| 3,417,715 |
| 3,804,772 |
| 3,619,644 |
| 4,079,160 |
| ||||
Diluted average common shares outstanding |
| 180,134,110 |
| 182,210,197 |
| 179,910,090 |
| 182,467,606 |
| ||||
Earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | .64 |
| $ | .51 |
| $ | 1.82 |
| $ | 1.42 |
|
Diluted |
| $ | .63 |
| $ | .50 |
| $ | 1.78 |
| $ | 1.39 |
|
Excluded from the computations above were antidilutiveanti-dilutive shares of approximately 2,146,0005,892,250 and 18,500 for the three and nine months ended September 30,March 31, 2009 and 2008, and approximately 2,150,000 for the three and nine months ended September 30, 2007.respectively.
Note 6-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 adverse effect on the Company’s consolidated financial positioncondition or results of operations.
Certain operations of the Company are subject to environmental laws and regulations thatwhich 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 adverse effect on the Company’s financial condition or results of operations.
The Company is currently involved in8
Subsequent to the environmental cleanupacquisition of several sites for conditions that existed at the time Amphenol Corporation was acquired from Allied Signal Corporation (“Allied Signal”) in 1987 (Allied Signal merged with and into Honeywell International, IncInc. in December 1999 (“Honeywell”) in December 1999.) The Company, Amphenol Corporation and Honeywell were named jointly and severally liable as potentially responsible parties in relation to suchseveral environmental cleanup sites. The CompanyAmphenol Corporation and Honeywell 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 costs incurred relating to these three sites are reimbursed by Honeywell based on the indemnification provisions of the Agreement and Plan of Mergeran agreement (the “Honeywell Agreement”) entered into in connection with the acquisition of the Company in 1987 (the “Honeywell Agreement”).1987. For sites covered by the Honeywell Agreement, to the extent that conditions or circumstances occurred or existed at the time of or prior to the acquisition in 1987, Honeywell is obligated to reimburse the CompanyAmphenol Corporation 100% of such costs. Honeywell representatives continue to work closely with the Company in addressing the most significant environmental liabilities covered by the Honeywell Agreement. Company managementManagement 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 consolidated financial condition or results of operations. Substantially all of theThe environmental cleanup mattersinvestigation, remedial and monitoring activities identified by the Company, to date, including those referred to above, are covered under the Honeywell Agreement.
Note 7-New Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). The objective of SFAS 141R is to improve the relevance and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, SFAS 141R establishes principles and requirements for how the acquirer: (1) recognizes and measures in its financial
8
statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The areas that are most applicable to the Company with regard to SFAS 141R are: (1) that SFAS 141R requires companies to expense transaction costs as incurred; (2) that any subsequent adjustments to a recorded performance-based liability after its initial recognition will need to be adjusted through income as opposed to goodwill; and (3) any noncontrolling interest will be recorded at fair value. SFAS 141R is effective for the Company beginning January 1, 2009 and the Company will apply the provisions of SFAS 141R prospectively to any business combinations for which the acquisition date is on or after that date.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements apply retrospectively for all periods presented. The areas that are most applicable to the Company with regard to SFAS 160 are: (1) SFAS 160 requires companies to classify expense related to noncontrolling interests’ share in income below net income (earnings per share will still be determined after the impact of noncontrolling interests’ share in net income of the Company as is the current practice.) During the nine months ended September 30, 2008 and 2007, the Company included expense related to the noncontrolling interests’ share in income of $7,615 and $7,612, respectively, in other expenses, net and (2) SFAS 160 requires the liability related to noncontrolling interests to be presented as a separate caption within shareholders’ equity. As of September 30, 2008 and December 31, 2007 the liability related to noncontrolling interests was $22,668 and $14,834, respectively, and is included in other long-term liabilities. The Company is currently evaluating the effect of SFAS 160 to determine the impact it will have, but believes the primary impacts will be as described above.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) with the intent to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the effect of SFAS 161 to determine the impact it will have but believes it will not significantly impact its disclosure requirements.
9
Note 8-Stock-Based7-Stock-Based Compensation
The Company has two option plans for employees (the “Option Plans”), the 1997 Option Plan and the 2000 Stock Purchase and Option Plan.Plan for key employees of Amphenol Corporation and subsidiaries. The Option Plans authorize the granting of additional stock options by a committee of the Board of Directors. At September 30, 2008,As of March 31, 2009, the maximum number of shares of common stock available for the granting of additional stock options under the Option Plans was 3,807,360.3,883,860. Options granted under the Option Plans vest ratably over a period of five years 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 Option Plans are subject to Management Stockholder Agreements.management stockholder agreements. As of April 2009, all previously awarded options under the 1997 Option Plan have been exercised or forfeited and the 1997 Plan has been terminated per the terms of the 1997 Plan.
In 2004, the Company adopted the 2004 Stock Option Plan for Directors of Amphenol Corporation (the “Directors Option Plan”). The Directors Option Plan is administered by the Board of Directors. At September 30, 2008,As of March 31, 2009, the maximum number of shares of common stock available for the granting of additional stock options under the Directors Option Plan was 260,000. Options granted under the Directors Option Plan vest ratably over a period of three years and are exercisable over a period of ten years from the date of grant.
The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected share price volatility was calculated based on the historical volatility of the stock of the Company and implied volatility derived from related exchange traded options. The average expected life was based on the contractual term of the option and expected employee exercise and historical post-vesting employment termination behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The expected annual dividend per share was based on the Company’s dividend rate.
Stock-based compensation expense includes the estimated effects of forfeitures, which are adjusted over the requisite service period to the extent actual forfeitures differ, or are expected to differ from such estimates. Changes in estimated forfeitures are recognized in the period of change and impact the amount of expense to be recognized in future periods. For the three months ended September 30, 2008,March 31, 2009, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $4,581$4,784 and $3,271,$3,631, respectively, and these reductions were $11,777$3,202 and $8,340,$2,257, respectively for the nine months ended September 30, 2008. For the three months ended September 30, 2007, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $3,273 and $2,316, respectively, and these reductions were $9,265 and $6,507, respectively, for the nine months ended September 30, 2007.March 31, 2008. The expense incurred for stock-based compensation is classified in selling, general and administrative expenses on the accompanying Condensed Consolidated Statements of Income.
10Stock option activity for the three months ended March 31, 2009 was as follows:
9
A summary of the Company’s outstanding options and option activity under the Option Plans and the Directors Plan (the “Plans”) as of September 30, 2008 and changes during the nine months then ended is as follows:
|
| Options |
| Weighted |
| Weighted |
| Aggregate |
| ||
Options outstanding at December 31, 2007 |
| 11,279,898 |
| $ | 19.72 |
| 6.55 |
| $ | 300,649 |
|
Options exercised |
| (34,075 | ) | 10.76 |
|
|
|
|
| ||
Options cancelled |
| (26,880 | ) | 24.11 |
|
|
|
|
| ||
Options outstanding at March 31, 2008 |
| 11,218,943 |
| $ | 19.73 |
| 6.31 |
|
|
| |
Options granted |
| 2,132,700 |
| 45.98 |
|
|
|
|
| ||
Options exercised |
| (608,728 | ) | 13.82 |
|
|
|
|
| ||
Options cancelled |
| (49,880 | ) | 28.45 |
|
|
|
|
| ||
Options outstanding at June 30, 2008 |
| 12,693,035 |
| $ | 24.39 |
| 6.74 |
|
|
| |
Options granted |
| 5,000 |
| 45.00 |
|
|
|
|
| ||
Options exercised |
| (1,404,161 | ) | 12.91 |
|
|
|
|
| ||
Options cancelled |
| (24,920 | ) | 33.73 |
|
|
|
|
| ||
Options outstanding at September 30, 2008 |
| 11,268,954 |
| $ | 25.81 |
| 6.94 |
| $ | 161,462 |
|
|
|
|
|
|
|
|
|
|
| ||
Exercisable at September 30, 2008 |
| 5,368,616 |
| $ | 16.49 |
| 5.35 |
| $ | 126,944 |
|
|
| Options |
| Weighted |
| Weighted |
| Aggregate |
| ||
|
|
|
|
|
|
|
|
|
| ||
Options outstanding as of December 31, 2008 |
| 11,229,837 |
| $ | 25.82 |
| 6.69 |
| $ | 52,850 |
|
Options exercised |
| (22,603 | ) | 9.65 |
|
|
|
|
| ||
Options cancelled |
| (54,300 | ) | 35.78 |
|
|
|
|
| ||
Options outstanding as of March 31, 2009 |
| 11,152,934 |
| $ | 25.81 |
| 6.45 |
| $ | 78,653 |
|
|
|
|
|
|
|
|
|
|
| ||
Exercisable as of March 31, 2009 |
| 5,353,196 |
| $ | 16.55 |
| 4.86 |
| $ | 66,243 |
|
A summary of the status of the Company’s non-vested options under the Plans as of September 30, 2008March 31, 2009 and changes during the ninethree months then ended is as follows:
|
| Options |
| Weighted |
| |
|
|
|
|
|
| |
Non-vested options at December 31, 2007 |
| 5,681,951 |
| $ | 8.24 |
|
Options vested |
| (3,267 | ) | 4.26 |
| |
Options cancelled |
| (26,880 | ) | 7.82 |
| |
|
|
|
|
|
| |
Non-vested options at March 31, 2008 |
| 5,651,804 |
| $ | 8.24 |
|
Options granted |
| 2,132,700 |
| 14.81 |
| |
Options vested |
| (1,811,486 | ) | 6.94 |
| |
Options cancelled |
| (49,880 | ) | 9.26 |
| |
|
|
|
|
|
| |
Non-vested options at June 30, 2008 |
| 5,923,138 |
| $ | 11.00 |
|
Options granted |
| 5,000 |
| 14.29 |
| |
Options vested |
| (2,880 | ) | 7.25 |
| |
Options cancelled |
| (24,920 | ) | 10.85 |
| |
Non-vested options at September 30, 2008 |
| 5,900,338 |
| $ | 11.00 |
|
|
| Options |
| Weighted |
| |
|
|
|
|
|
| |
Non-vested options as of December 31, 2008 |
| 5,852,838 |
| $ | 11.03 |
|
Options cancelled |
| (53,100 | ) | 11.57 |
| |
|
|
|
|
|
| |
Non-vested options as of March 31, 2009 |
| 5,799,738 |
| $ | 11.02 |
|
During the three and nine months ended September 30,March 31, 2009 and 2008, and 2007, the following activity occurred under the Company’s Plans:
11
|
| Three months ended |
| Nine months ended |
| |||||||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
| ||||||
Total intrinsic value of stock options exercised |
| $ | 52,297 |
| $ | 12,125 |
| $ | 73,149 |
| $ | 64,725 |
|
| $ | 383 |
| $ | 984 |
|
Total fair value of stock awards vested |
| 21 |
| 50 |
| 12,606 |
| 11,034 |
|
| — |
| 14 |
|
On September 30, 2008March 31, 2009, the total compensation cost related to non-vested options not yet recognized under the Plans wasis approximately $52,181$41,690 with a weighted average expected amortization period of 3.823.43 years.
Note 9-Shareholders’8-Shareholders’ Equity
The Company maintains an open-market stock repurchase program (the “Program”) expiring on January 31, 2010 to repurchase up to 20,000,000 shares of its common stock. In January 2008, the Company announced that its Board of Directors authorized an increase to the number of shares which may be purchased under the Program from 10,000,000 to 20,000,000 shares of common stock in addition to extending the Program’s maturity date from December 31, 2008 to January 31, 2010. The Company did not purchase any shares of its common stock during the three months ended September 30, 2008. During the nine months ended September 30, 2008, the Company purchasedMarch 31, 2009. As of March 31, 2009, approximately 3,800,000 shares of its common stock for $143,693. At September 30, 2008, approximately 7,800,0001,850,000 shares of common stock may still be repurchasedpurchased under the Program.
The Company made twopays a quarterly dividend paymentson its common stock of $.015 per share. The Company paid its first quarter dividend in the aggregate amount of $5,300$2,568, or $.030$.015 per share during the three months ended September 30, 2008.on March 31, 2009 to shareholders of record as of March 11, 2009. Total dividends paid in 20082009 were $10,617, which include dividends$5,135, including those declared in 20072008 and paid in 2008.2009.
10
Note 10-Benefit9-Benefit Plans and Other Postretirement Benefits
The Company and certain of its domestic subsidiaries have a defined benefit pension plan (“U.S.(the “U.S. Plan”) which, subject to the curtailment described below, coverscovering certain of its U.S. employees. Benefits under the U.S. Plan benefits are generally based on years of service and compensation and are generally noncontributory. Certain foreign subsidiaries also have defined benefit plans covering their employees. Certain U.S. employees not covered by the U.S. Plan are covered by defined contribution plans. The following is a summary based onof the funded status of the Company’s defined benefit plans as of the most recent actuarial valuations, of the Company’s net costvaluations; for pensioneach year presented below, projected benefits and other benefits for the three and nine months ended September 30, 2008 and 2007:exceed assets.
|
| Pension Benefits |
| Other Postretirement |
| |||||||||||||||||||||
|
| Three months ended September 30, |
| |||||||||||||||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
|
| Pension Benefits |
| Other Postretirement |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||||||
Service cost |
| $ | 1,921 |
| $ | 2,248 |
| $ | 47 |
| $ | 44 |
|
| $ | 1,621 |
| $ | 1,947 |
| $ | 40 |
| $ | 47 |
|
Interest cost |
| 5,755 |
| 5,414 |
| 219 |
| 208 |
|
| 5,568 |
| 5,794 |
| 209 |
| 219 |
| ||||||||
Expected return on plan assets |
| (6,585 | ) | (6,216 | ) | — |
| — |
|
| (5,701 | ) | (6,630 | ) | — |
| — |
| ||||||||
Amortization of transition obligation |
| (27 | ) | (27 | ) | 16 |
| 16 |
|
| (22 | ) | (27 | ) | 16 |
| 16 |
| ||||||||
Amortization of prior service cost |
| 519 |
| 392 |
| — |
| — |
|
| 514 |
| 519 |
| — |
| — |
| ||||||||
Amortization of net actuarial losses |
| 1,514 |
| 2,338 |
| 241 |
| 270 |
|
| 1,912 |
| 1,519 |
| 193 |
| 241 |
| ||||||||
Net benefits expense |
| $ | 3,097 |
| $ | 4,149 |
| $ | 523 |
| $ | 538 |
|
| $ | 3,892 |
| $ | 3,122 |
| $ | 458 |
| $ | 523 |
|
12
|
| Pension Benefits |
| Other Postretirement |
| ||||||||
|
| Nine months ended September 30, |
| ||||||||||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| ||||
Service cost |
| $ | 5,826 |
| $ | 6,644 |
| $ | 141 |
| $ | 132 |
|
Interest cost |
| 17,369 |
| 16,125 |
| 658 |
| 624 |
| ||||
Expected return on plan assets |
| (19,842 | ) | (18,563 | ) | — |
| — |
| ||||
Amortization of transition obligation |
| (81 | ) | (76 | ) | 47 |
| 48 |
| ||||
Amortization of prior service cost |
| 1,557 |
| 1,176 |
| — |
| — |
| ||||
Amortization of net actuarial losses |
| 4,552 |
| 6,983 |
| 723 |
| 810 |
| ||||
Net benefits cost |
| $ | 9,381 |
| $ | 12,289 |
| $ | 1,569 |
| $ | 1,614 |
|
Effective January 1, 2007,In general, the Company effected a curtailment on the U.S. Plan which resulted in no additional benefits being creditedplans to salaried employees in the U.S. (i) who have less than 25 years service with the Company or (ii) have not attained age 50 and who have less than 15 years of service with the Company. For affected employees, the curtailment in additional U.S. Plan benefits was replaced with a Company match defined contribution plan.
The Company made a voluntarymake cash contributioncontributions to the U.S. Plan of $20,000 in September 2008. accordance with minimum funding requirements but may also make voluntary cash contributions. Cash contributions made in 20082009 and in future years will depend on a number of factors including performance of the U.S. Plan assets. In August 2006, the President of the U.S. signed into law the Pension Protection Act of 2006. The Pension Protection Act is effective for plan years beginning in 2008 and did not have a material impact on the Company’s consolidated financial condition or results of operations.
The Company offers various defined contribution plans for its U.S. and foreign employees. Participation in these plans is based on certain eligibility requirements. Effective January 1, 2007, in conjunction with the curtailment of certain additional U.S. Plan benefits for salaried employees described above, theThe Company began matchingmatches the majority of employee contributions to the U.S. defined contribution plans with cash contributions up to a maximum of 5% of eligible compensation. During the ninethree months ended September 30,March 31, 2009 and 2008, and 2007, the total matching contributions to these plans were approximately $1,396$528 and $1,279,$509, respectively.
Note 11-Goodwill10-Goodwill and Other Intangible Assets
As of September 30, 2008,March 31, 2009, the Company has goodwill totaling $1,189,788$1,334,948 of which $1,116,239$1,261,399 is related to the Interconnect Products and Assemblies segment with the remainder related to the Cable Products segment. For the ninethree months ended September 30, 2008,March 31, 2009, goodwill increased by $97,960$102,613, primarily as a result of recording liabilities for performance-based additional cash consideration related to prior acquisitions of approximately $99,900, which was related to the Interconnect segment. In addition, the Company made two acquisitions in the Interconnect Products and Assemblies segment with an aggregate acquisition price of approximately $47,100 lessmade during the fair value of net tangible and identifiable intangible assets acquired of $16,000. These increases were offset by a reclassification of $14,100 from goodwill to other long term assets which represents the fair value assigned to identifiable intangible assets associated with the Company’s acquisitions in 2007 and a reduction due to currency translation of $18,900.period. The Company is in the process of completing its analysis of fair value attributes of the assets acquired related to someits 2009 and certain of its 2007 and 2008 acquisitions and anticipates that the final assessment of values will not differ materially from the preliminary assessment.
The Company does not have any intangible assets other than goodwill, that are not subject to amortization. Asamortization other than goodwill. A summary of September 30, 2008, the Company has acquiredCompany’s amortizable intangible assets with a total gross carrying amountas of $75,200, of which $33,300, $27,700 and $6,000 relate to proprietary technology, customer relationships and license agreements, respectively, with the remainder relating to other amortizableMarch 31, 2009 is as follows:
|
| Gross Carrying |
| Accumulated |
| Weighted-Average |
| ||
|
|
|
|
|
|
|
| ||
Customer relationships |
| $ | 64,300 |
| $ | 11,600 |
| 9 years |
|
Proprietary technology |
| 36,900 |
| 7,100 |
| 15 years |
| ||
License agreements |
| 6,000 |
| 2,500 |
| 8 years |
| ||
Trade names |
| 1,300 |
| — |
| 15 years |
| ||
Other |
| 7,800 |
| 6,800 |
| 15 years |
| ||
Total |
| $ | 116,300 |
| $ | 28,000 |
| 11 years |
|
1311
intangible assets. The accumulated amortization related to these intangibles as of September 30, 2008 totaled $22,500, of which $6,000, $8,300 and $2,200 relate to proprietary technology, customer relationships and license agreements, respectively, with the remainder relating to other amortizable intangible assets. Intangible assets are included in other long-term assets in the accompanying condensed consolidated balance sheets. The acquired intangible assets have a total weighted-average useful life of approximately 10 years. The license agreements, proprietary technology and customer relationships have a weighted-average useful life of 8 years, 15 years and 5 years, respectively.Condensed Consolidated Balance Sheets. The aggregate amortization expense for the three months ended September 30,March 31, 2009 and 2008 and 2007 was approximately $2,664$2,900 and $1,377 respectively. The aggregate amortization expense for the nine months ended September 30, 2008 and 2007 was approximately $7,286 and $4,126,$2,200, respectively. As of September 30, 2008,March 31, 2009, amortization expense estimated for each of the next five fiscal years is approximately $9,500 in 2009, $8,900$12,800 in 2010, $6,900$10,800 each in 2011 $6,700and 2012, $7,600 in 20122013 and $3,400$4,700 in 2013.2014.
Note 12–11—Long-Term Debt
The Company’s senior unsecured revolving credit facility (“Revolving Credit Facility”) is comprised of a five-year $1,000,000 unsecured revolving credit facility that is scheduled to expire in August 2011, of which approximately $760,000$861,000 was drawn at September 30, 2008. At September 30, 2008,as of March 31, 2009 (the “Revolving Credit Facility”). As of March 31, 2009, availability under the Revolving Credit Facility was $225,182$137,000 after a reduction of $14,818$2,000 for outstanding letters of credit. The Company’s interest rate on borrowings under the Revolving Credit Facility is LIBOR plus 40 basis points. The Company also pays certain annual agency and facility fees. The Revolving Credit Facility requires that the Company satisfy certain financial covenants. At September 30, 2008,As of March 31, 2009, the Company was in compliance with all financial covenants under the Revolving Credit Facility, and the Company’s credit rating from Standard & Poor’s was BBB- and from Moody’s was Baa3. In March 2009, the Company entered into a $20,000 letter of credit facility, of which approximately $12,800 was outstanding as of March 31, 2009.
As of September 30, 2008,March 31, 2009, the Company had interest rate swap agreements of $150,000, $250,000 $150,000 and $250,000 that fix the Company’s LIBOR interest rate at 4.85%4.40%, 4.40%4.65% and 4.73%, respectively, expiring in December 2008,2009, December 2009 and July 2010, respectively. In October 2007, the Company entered into interest rate swaps that fix the Company’s LIBOR interest rate on $250,000 of floating rate bank debt at 4.65% which go into effect in December 2008 and expire in December 2009. The fair value of swaps indicated that termination of the agreements at September 30, 2008as of March 31, 2009 would have resulted in a pre-tax loss of $13,148;$21,053; such loss, net of tax of $5,036,$7,790, is recorded in accumulated other comprehensive loss.
Note 13–12- Business Combinations
Effective January 1, 2009, the Company adopted SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R is applicable to the Company for acquisitions completed on or after January 1, 2009 and establishes principles and requirements for how the acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or the gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The areas of SFAS 141R that are most applicable to the Company are: (1) SFAS 141R requires companies to expense transaction costs as incurred; (2) any subsequent adjustments to a recorded performance-based liability after its recognition will be adjusted through income as opposed to goodwill; and (3) any noncontrolling interest will be recorded at fair value.
During the three months ended March 31, 2009, goodwill of approximately $126,000, attributable to the Interconnect Products and Assemblies segment, was recognized related to businesses acquired during the period which are not significant to the Company either individually or in the aggregate.
Note 13—Fair Value Measurements
Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a new framework for measuring fair value of financial and non-financial instruments and expands related disclosures. The Company does not have any non-financial instruments accounted for at fair value on a recurring basis. Broadly, the SFAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. SFAS 157 establishes market or observable inputs as the preferred source of values. Assumptions based on hypothetical transactions are used in the absence of market inputs.
The valuation techniques required by SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect ourthe
12
Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
14
Level 3 Significant inputs to the valuation model are unobservable.
The Company maintains policies and procedures to value instruments using the best and most relevant data available including independent price validation for certain instruments.
The Company believes that the only financial instrument subject to SFAS 157 with interim disclosure requirements are derivative instruments which represent interest rate swaps that are independently valued using market observable Level 2 inputs including interest rate yield curves. At September 30, 2008,As of March 31, 2009, the fair values of derivative instruments were a liability of $13,148.$21,053.
The Company does not have any other significant financial or non-financial assets and liabilities that are measured at fair value on a non-recurring basis.
Note 14 –14- Derivative Instruments
Effective January 1, 2009, the Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) requiring: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.
The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. Forward interest rate swap agreements are entered into to manage interest rate risk associated with the Company’s variable-rate borrowings.
SFAS 133 requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets. In accordance with SFAS 133, the Company designates forward interest rate swap agreements on variable-rate borrowings as cash flow hedges.
As of March 31, 2009 and December 31, 2008, the Company had the following derivative activity related to cash flow hedges:
|
|
|
| Fair Value |
| ||||
|
| Balance Sheet Location |
| March 31, 2009 |
| December 31, 2008 |
| ||
Derivatives designated as hedging instruments under SFAS 133: |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
Interest rate contracts |
| Other accrued expenses |
| $ | 9,466 |
| $ | 12,053 |
|
|
|
|
|
|
|
|
| ||
Interest rate contracts |
| Other long-term liabilities |
| 11,587 |
| 12,904 |
| ||
Total derivatives designated as hedging instruments under SFAS 133 |
|
|
| $ | 21,053 |
| $ | 24,957 |
|
For the three months ended March 31, 2009, a gain of $2,460 was recognized in accumulated other comprehensive loss associated with interest rate contracts. No gain or loss was reclassified from accumulated other comprehensive loss into net income during the period.
13
As of March 31, 2009, all derivatives of the Company were considered effective hedges as defined in SFAS 133.
Note 15 — Off-Balance Sheet Arrangement –— Accounts Receivable Securitization
A subsidiary of the Company has an agreement with a financial institution whereby the subsidiary can sell an undivided interest of up to $100,000 in a designated pool of qualified accounts receivable (the “Agreement”). The Company services, administers and collects the receivables on behalf of the purchaser. The Agreement includes certain covenants and provides for various events of termination and expires in July 2009. Upon expiration, the Company intends to replace the Agreement with a similar program. Due to the short-term nature of the accounts receivable, the fair value approximates the carrying value. At September 30, 2008Program fees payable to the purchaser under the Agreement are equivalent to rates afforded high quality commercial paper issuers plus certain fees and administrative expenses and are included in other expenses, net, in the accompanying Consolidated Statements of Income. As of March 31, 2009 and December 31, 2007,2008, approximately $91,000 and $85,000, respectively, of receivables were sold and are therefore not reflected in accounts receivable in the accompanying Condensed Consolidated Balance Sheets.
Note 15 -16- Income Taxes
The provision for income taxes for the thirdfirst quarter of 2009 and the first nine months of 2008 was at an effective rate of 28.6%24.1% and 29.2%29.1% (after reclassification of net income attributable to noncontrolling interest to conform to the 2009 presentation), respectively. The provision for income taxes forrespectively, the third quarter and the first nine months of 2007 was at an effective rate of 29.2% and 29.8%, respectively. The effective tax rates for the third quarter and the first nine months of 2008 were lower than the respective 2007 ratesdecrease due primarily to an increasea reduction of income tax expense of approximately $3,600 in 2009 relating to the completion of certain audits of the Company’s prior year tax returns. In addition, the lower 2009 rate reflects a more favorable mix of income being generated in lower tax jurisdictions.
At September 30, 2008,As of March 31, 2009, the amount of the liability for unrecognized tax benefits, which if recognized would impact the effective tax rate, was approximately $37,305,$37,108, the majority of which is included in other long-term liabilities on the accompanying condensed consolidated balance sheets.Condensed Consolidated Balance Sheets.
1514
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS | |
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||
(dollars in millions, unless otherwise noted, except per share data) |
Results of Operations
Quarter and nine months ended September 30, 2008March 31, 2009 compared to the quarter and nine months ended September 30, 2007March 31, 2008
Net sales were $863.7 and $2,481.2$660.0 in the thirdfirst quarter and first nine months of 20082009 compared to $733.9 and $2,073.8$770.7 for the same periodsperiod in 2007, an increase2008, a decrease of 18% and 20%14% in U.S. dollars respectively, and 16% and 17%11% in local currencies, respectively.currencies. Sales of interconnect products and assemblies (approximately 91% of sales) increased 19%decreased 14% in U.S. dollars and 17% in local currencies in the third quarter of 2008 compared to 2007 ($786.2 in 2008 versus $659.4 in 2007) and 21% in U.S. dollars and 18%11% in local currencies in the first nine monthsquarter of 20082009 compared to the same period2008 ($602.0 in 2007 ($2,258.02009 versus $700.6 in 2008 versus $1,862.9 in 2007)2008). Sales increaseddecreased significantly in all of the Company’s major end markets including the mobile communications, military/aerospace,automotive, telecommunications and data communications and industrial/automotive markets.industrial markets as a result of a weak end market demand resulting from the global economic crisis. Sales increasesin the military aerospace market were relatively flat as moderate growth in defense-related sales were offset by a weak commercial aircraft market. Sales in the wireless communications market grew primarily as a result of strength in China-related programs and the impact of acquisitions. Sales decreases occurred in all major geographic regions and resulted from the continuing development of new application specific solutions and value added products, and increased worldwide presence with the leading companies in target markets.regions. Sales of cable products (approximately 9% of sales) increased 4% and 5%decreased 17% in U.S. dollars and 6%11% in local currencies in both the thirdfirst quarter and first nine months of 2008, respectively,2009 compared to the same periods in 2007 ($77.5 and $223.3period in 2008 ($58.0 in 2009 versus $74.5 and $210.9$70.1 in 2007). This increase is2008), primarily attributable to the impact of increased sales of coaxiala slowdown in spending in broadband and cable products for the broadband communications markettelevision markets resulting primarily from increased capital spending by international cable operators for network upgradescurrent weak economic conditions and expansion.difficult credit markets.
Geographically, sales in the United States in the thirdfirst quarter and first nine months of 2008 increased2009 decreased approximately 3% and 2%21% compared to the same periods in 2007 ($294.5 and $886.2period in 2008 ($230.2 in 2009 versus $285.2 and $865.8$292.5 in 2007)2008). International sales for the thirdfirst quarter and first nine months of 2008 increased2009 decreased approximately 27% and 32%10% in U.S. dollars respectively, ($569.2 and $1,595.0 in 2008 versus $448.7 and $1,208.0 in 2007) and increased approximately 24% and 27%5% in local currency compared to the same periodsperiod in 2007.2008 ($429.8 in 2009 versus $478.2 in 2008). The comparatively weakerstrong U.S. dollar for the thirdfirst quarter and first nine months of 2008 had the effect of increasingdecreasing net sales by approximately $15.9 and $64.0$23.1 when compared to foreign currency translation rates for the same periodsperiod in 2007.2008.
The gross profit margin as a percentage of net sales was approximately 32.6%31.3% for both the thirdfirst quarter and first nine months of 2008 and2009 compared to 32.6% for the same periodsperiod in 2007.2008. The operating margins in the Interconnect Products and Assemblies segment increaseddecreased approximately 0.4% and 0.5%2.6% in the thirdfirst quarter and first nine months of 2008, respectively,2009 when compared to the same periodsperiod in 2007,2008, primarily as a result of reduced volume levels given the continuing development of new higher margin application specific products, strong operating leverage on incremental volume and aggressive programs of cost controlcurrent economic environment, partially offset by effective cost increases resulting primarily from higher material costs.control programs. The operating margins for the Cable Products segment decreasedincreased by approximately 1.7% and 1.1% in the thirdfirst quarter and first nine months of 2008, respectively,2009 compared to the same periodsperiod in 2007. The decrease in margin for cable products is due2008, primarily toas a results of the positive impacts of lower material costs and operational cost reduction actions, which more than offset the impact of higher material costs partially offset by the impact of price increases.lower sales volume.
Selling, general and administrative expenses increaseddecreased to $109.9 and $318.9$95.7, or 12.7% and 12.9%14.5% of net sales, in the thirdfirst quarter and first nine months of 2008, respectively, compared to $95.8 and $276.0$100.6 for the same periodsperiod in 20072008, which represented approximately 13.1% and 13.3% of sales, respectively.net sales. The increasedecrease in expense in the thirdfirst quarter and first nine months of 20082009 is primarily attributable to increases in selling expense, including increased transportation costs as well as payroll and fringe related costs, resulting from highersignificantly lower sales volume increased research and development spending relating to new product development and
16
higher stock-based compensation expense.the positive effect of cost reduction actions.
Other expenses, net, for the thirdfirst quarter of 2009 and 2008 were $0.2 and 2007 were $3.3 and $4.7,$0.5 (excludes net income attributable to noncontrolling interests reclassified in accordance with SFAS 160), respectively, and were comprised primarily of minority interests ($3.5 in 2008agency and $3.7 in 2007),commitment fees on the Company’s credit facilities and program fees on the sale of accounts receivable ($0.7 in 20082009 and $1.3$1.4 in 2007) and agency and commitment fees on the Company’s Revolving Credit Facility ($0.5 in both 2008 and 2007)2008) offset by interest income ($1.30.6 in 20082009 and $0.8$1.0 in 2007).
Other expenses, net, for the first nine months of 2008 and 2007 were $7.8 and $11.5, respectively, and were comprised primarily of minority interests ($7.6 in both 2008 and 2007), program fees on the sale of accounts receivable ($2.4 in 2008 and $3.9 in 2007) and agency and commitment fees on the Company’s Revolving Credit Facility ($1.3 in both 2008 and 2007) offset by interest income ($3.3 in 2008 and $1.6 in 2007)2008).
Interest expense for the thirdfirst quarter and first nine months of 20082009 was $9.8 and $29.6$9.0 compared to $9.4 and $27.4$9.9 for the same periodsperiod in 2007. The increases for the third quarter and first nine months of 2008, compared to the 2007 periods areprimarily attributable to higherlower average debt levels reflecting borrowings to fund stock repurchasesinterest rates in the first quarter of 2008.2009.
The provision for income taxes for the thirdfirst quarter of 2009 and the first nine months of 2008 was at an effective rate of 28.6%24.1% and 29.2%29.1%, respectively. The provision for income taxes forrespectively, the third quarter and the first nine months of 2007 was at an effective rate of 29.2% and 29.8%, respectively. The effective tax rates for the third quarter and the first nine months of 2008 were lower than the respective 2007 ratesdecrease due primarily to an increasea reduction of income tax expense of $3.6 in 2009 relating
15
to the completion of certain audits of the Company’s prior year tax returns. In addition, the lower 2009 rate reflects a more favorable mix of income being generated in lower tax jurisdictions.
Liquidity and Capital Resources
Cash provided by operations was $310.7$142.8 in the first ninethree months of 20082009 compared to $254.9$109.6 in the same 20072008 period. The increase in cash flow is related primarily to an increasea decrease in net income as well as an increase, incomponents of working capital, the 2008 period, in non-cash expenses including depreciation and amortization and stock-based compensation expensesale of $6.0 of receivables under the Company’s receivable securitization program in addition to an increase in other long-term liabilitiesnon-cash expenses including stock-based compensation and depreciation which more than offset by a larger increasereduction in the non-cashnet income. The components of working capital.capital decreased $34.3 in the first three months of 2009 due primarily to decreases of $58.6 and $46.1 in accounts receivable and inventory, respectively, which were partially offset by decreases in accounts payable and accrued liabilities of $56.7 and $14.4, respectively. The components of working capital increased $91.4$18.9 in the first ninethree months of 2008 due primarily to increases of $74.9$22.8 in inventory, an increase in prepaid expenses and other assets of $7.7 and a decrease in accounts payable of $16.4 offset by a decrease in accounts receivable and increases of $60.1 and $30.4 in inventory and other current assets, respectively, which were offset by increases in accounts payable and accrued liabilities of $45.3 and $28.7, respectively. The components of working capital increased $65.2 in the first nine months of 2007 due primarily to increases of $67.2 and $11.9 in accounts receivable and other current assets, respectively,$22.0 and an increase in inventoryaccrued expenses of $18.2 offset by increases in accounts payable and accrued liabilities of $29.1 and $3.0, respectively.$6.0.
Accounts receivable increased $73.3, due primarilydecreased $56.5 to an increase in$459.5, reflecting the impact of lower sales levels and an increasea decrease due to acquisitions during the period, partially offset by translation resulting from the comparatively stronger U.S. dollar at September 30, 2008March 31, 2009 compared to December 31, 20072008 (“Translation”). partially offset by the impact of acquisitions of $16.9. Days sales outstanding was 7072 days at September 30, 2008both March 31, 2009 and 69 days at December 31, 2007.2008. Inventories increased $65.0decreased $32.8 to $521.9,$479.7, primarily due to adjustments to production activity in response to lower demand levels and Translation offset by the impact of higher sales activity as well as an increase due to acquisitions partially offset by Translation.of $19.3. Inventory days, excluding the impact of acquisitions, increased from 8088 at December 31, 20072008 to 8293 at September 30, 2008. Other current assets increased $22.5 to $95.4 primarily due to anMarch 31, 2009. The increase in short term cash investment balancesinventory days resulted primarily from a slowdown in sales activity in the first quarter of 2009 as wella result of the global economic slowdown. The Company will continue to focus on inventory reduction as an increaseadjustments to production activity continue in certain foreign tax receivables.response to lower demand levels. Land and depreciable assets, net, increased $20.2$1.1 to $336.4$345.6 reflecting capital expenditures of $83.4, and$17.2 as well as fixed assets from acquisitions of $9.5, offset by depreciation of $61.2$20.0, $5.1 due to Translation and to a lesser extent from Translation.disposals of $0.5. Goodwill increased $98.0$102.6 to $1,189.8$1,334.9, primarily as a result of adjustments relative to performance-based additional cash consideration on priortwo acquisitions of $99.9 in addition to acquisitions completedthe Interconnect Products and Assemblies segment made during the period resulting in an increase of $31.1. This increase was offset by a reclassification of $14.1 from goodwill to other long-term assets, which represents the fair value assigned to identifiable intangible assets associated with the Company’s acquisitions in 2007 and a reduction due to foreign currency translation of $18.9.period. Other long-term assets increased $16.5$19.8 to
17
$60.4 $101.3 primarily due to an increase in identifiable intangible assets resulting from 2008 acquisitions as well as intangible assets reclassified from goodwill as discussed abovemade in the first quarter of 2009 partially offset by amortization of the intangible asset balances.a decrease in long-term deferred tax assets. Accounts payable increased $49.8decreased $48.8 to $345.2$257.2 primarily as a result of an increasea decrease in purchasing activity during the period related to thirdlower first quarter 2009 sales levels offset by Translation. Total accrued expenses increased $45.1 to $269.1 primarily due to a net increase in accrued liabilities for performance-based additional cash purchase consideration associated with certainthe impact of acquisitions of $36.5 as well as an increase in accrued salaries, wages and employee benefits partially offset by Translation. Accrued pension and post employment benefit obligations decreased $15.7 to $86.1 primarily resulting from a $20.0 contribution made to$10.4 during the Company’s pension plan in September 2008quarter and to a lesser extent fromTranslation. Total accrued expenses decreased $116.3 to $212.2 primarily due a reduction in accrued acquisition-related obligations of $102.8 as well as a decrease in accrued income taxes and Translation partially offset by 2008 expense provisions. Other long-term liabilities increased $16.7 to $83.7 due primarily to higher minority interest liabilities and tax related liabilities.of $16.3.
For the first ninethree months of 2008,2009, cash from operations of $310.7,$142.8, net borrowings from the Revolving Credit Facility of $46.1$85.9, sales of short-term investments of $1.4, proceeds from the exercise of stock options including tax benefits from stock-based payment arrangements of $0.3 and cash on hand of $64.5 were used to fund acquisition-related payments of $261.5, capital expenditures of $16.9 and dividend payments of $5.1. For the first three months of 2008, cash from operating activities of $109.6, net borrowings from the revolving credit facility of $127.1, proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $48.2$0.6 and cash on hand of $3.5 were used to fund purchases of treasury stock of $143.7, acquisition related payments of $100.4,$70.4, capital expenditures of $83.0,$20.0, purchases of short-term investments of $14.0,$4.2 and dividend payments of $10.6 and an increase in cash on hand of $47.1. For the first nine months of 2007, cash from operations of $254.9, net borrowings from the Revolving Credit Facility of $36.2, proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $44.3 and proceeds from the disposal of fixed assets of $0.9 were used to fund capital expenditures of $76.7, acquisition related payments of $69.4, purchases of treasury stock of $87.1, dividend payments of $8.0, purchases of short-term investments of $4.6 and an increase in cash on hand of $90.5.$2.7.
The Company’s senior unsecured Revolving Credit Facilityrevolving credit facility is comprised of a five-year $1,000.0 unsecured revolving credit facility that is scheduled to expire in August 2011 (the “Revolving Credit Facility), of which approximately $760.0$861.3 was drawn at September 30, 2008. At September 30, 2008,as of March 31, 2009. As of March 31, 2009, availability under the Revolving Credit Facility was $225.2$136.7 after a reduction of $14.8$2.0 for outstanding letters of credit. The Company’s interest rate on borrowings under the Revolving Credit Facility is LIBOR plus 40 basis points. The Company also pays certain annual agency and facility fees. The Revolving Credit Facility requires that the Company satisfy certain financial covenants. At September 30, 2008,As of March 31, 2009, the Company was in compliance with all financial covenants under the Revolving Credit Facility, and the Company’s credit rating from Standard & Poor’s was BBB- and from Moody’s
16
was Baa3. In March 2009, the Company entered into a $20.0 letter of credit facility, of which approximately $12.8 was outstanding as of March 31, 2009.
As of September 30, 2008,March 31, 2009, the Company had interest rate swap agreements of $150.0, $250.0 $150.0 and $250.0 that fix the Company’s LIBOR interest rate at 4.85%4.40%, 4.40%4.65% and 4.73%, respectively, expiring in December 2008,2009, December 2009 and July 2010, respectively. In October 2007, the Company entered into interest rate swaps that fix the Company’s LIBOR interest rate on $250.0 of floating rate bank debt at 4.65% which go into effect in December 2008 and expire in December 2009. The fair value of swaps indicated that termination of the agreements at September 30, 2008as of March 31, 2009 would have resulted in a pre-tax loss of $13.1;$21.0; such loss, net of tax of $5.0,$7.8, is recorded in accumulated other comprehensive loss.
A subsidiary of the Company has an agreement with a financial institution whereby the subsidiary can sell an undivided interest of up to $100.0 in a designated pool of qualified accounts receivable (the “Agreement”). The Company services, administers and collects the receivables on behalf of the purchaser. The Agreement includes certain covenants and provides for various events of termination and expires in July 2009. Upon expiration, the Company intends to replace the Agreement with a similar program. Due to the short-term nature of the accounts receivable, the fair value approximates the carrying value. At September 30,Program fees payable to the purchaser under the agreement are equivalent to rates afforded high quality commercial paper issuers plus certain fees and administrative expenses and are included in other expenses, net, in the accompanying Consolidated Statements of Income. As of March 31, 2009 and December 31, 2008, approximately $91.0 and $85.0, respectively, of receivables were sold and are therefore not reflected in the accounts receivable balance in the accompanying Condensed Consolidated Balance Sheets.
The Company’s primary ongoing cash requirements will be for operating and capital expenditures, product development activities, repurchase of its common stock, dividends and debt service. The Company may also use cash to fund all or part of the cost of future acquisitions as well as for liabilities for performance-based additional cash consideration on prior acquisitions. The Company’s debt service requirements consist primarily of principal
18
and interest on bank borrowings. The Company’s primary sources of liquidity are internally generated cash flow, the Revolving Credit Facility and the sale of receivables under the Agreement. In addition, the Company had cash, cash equivalents and short-term investments of $246.2 million at September 30, 2008,$153.5 as of March 31, 2009, the majority of which is in non-U.S. accounts. The Company expects that ongoing requirements for operating and capital expenditures, product development activities, repurchase of its common stock, dividends and debt service requirements will be funded from these sources; however, the Company’s sources of liquidity could be adversely affected by, among other things, a decrease in demand for the Company’s products, a deterioration in certain of the Company’s financial ratios, a decline in its credit ratings or a deterioration in the quality of the Company’s accounts receivable.
The Company maintains an open-market stock repurchase program (the “Program”) expiring January 31, 2010 to repurchase up to 20 million shares of its common stock. In January 2008, the Company announced that its Board of Directors authorized an increase to the number of shares which may be purchased under the Program from 10 million to 20 million shares of common stock in addition to extending the Program’s maturity date from December 31, 2008 to January 31, 2010. The Company did not purchase any shares of its common stock during the three months ended September 30, 2008. During the nine months ended September 30, 2008, the Company purchasedMarch 31, 2009. As of March 31, 2009, approximately 3.8 million shares of its common stock for $143.7. At September 30, 2008, approximately 7.81.8 million shares of common stock may be repurchasedpurchased under the Program.
The Company made twopays a quarterly dividend paymentson its common stock of $.015 per share. The Company paid its first quarter dividend in the aggregate amount of $5.3$2.6, or $.030$.015 per share during the three months ended September 30, 2008.on March 31, 2009 to shareholders of record as of March 11, 2009. Total dividends paid in 20082009 were $10.6, which include dividends$5.1, including those declared in 20072008 and paid in 2008.2009.
The In general, the Company made a voluntaryplans to make cash contributioncontributions to the U.S. Pension Plan of $20.0 in September 2008. accordance with minimum funding requirements but may also make voluntary cash contributions. Cash contributions made in 20082009 and in future years will depend on a number of factors including performance of planU.S. Plan assets. In August 2006, the President signed into law the Pension Protection Act of 2006. The Pension Protection Act is effective for plan years beginning in 2008 and did not have a material impact on the Company’s consolidated financial condition or results of operations.
The Company intends to retain the remainder of its earnings to provide funds for the operation and expansion of the Company’s business, to repurchase its common stock and to repay outstanding indebtedness. Management believes that the Company’s working capital position, cash on hand, expected continuing ability to generate strong cash flow from operations, availability under its Revolving Credit Facility and access to credit markets will allow it to meet its obligations for the next twelve months and the foreseeable future.
17
Environmental Matters
Certain operations of the Company are subject to federal, state and local environmental laws and regulations thatwhich 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 adverse effect on the Company’s financial condition or results of operations.
The Company is currently involved inSubsequent to the environmental cleanupacquisition of several sites for conditions that existed at the time Amphenol Corporation was acquired from Allied Signal Corporation (“Allied Signal”) in 1987 (Allied Signal merged with and into Honeywell International, IncInc. in December 1999 (“Honeywell”) in December 1999). The Company), Amphenol Corporation and Honeywell were named jointly and severally liable as potentially responsible parties in relation to suchseveral environmental cleanup sites. The CompanyAmphenol Corporation and Honeywell 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 costs incurred relating to these three sites are reimbursed by Honeywell based on the indemnification provisions of the Agreement and Plan of Mergeran agreement (the “Honeywell Agreement”) entered into in connection with the acquisition of the Company in 1987 (the “Honeywell Agreement”).1987. For sites covered by the Honeywell Agreement, to the extent that conditions or circumstances occurred or existed at the time of or prior to the acquisition in 1987, Honeywell is obligated to reimburse the CompanyAmphenol Corporation 100% of such costs. Honeywell
19
representatives continue to work closely with the Company in addressing the most significant environmental liabilities covered by the Honeywell Agreement. Company managementManagement 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 consolidated financial condition or results of operations. Substantially all of theThe environmental cleanup mattersinvestigation, remedial and monitoring activities identified by the Company, to date, including those referred to above, are covered under the Honeywell Agreement.
Safe Harbor Statement
Statements in this report that are not historical are “forward-looking” statements within the meaning of the federal securities laws, and should be considered subject to the many uncertainties that exist in the Company’s operations and business environment. These uncertainties, which include, among other things, economic and currency conditions, market demand and pricing and competitive and cost factors, are set forth in Part I, Item 1A of the Company’s 20072008 Annual Report on Form 10-K. Actual results could differ materially from those currently anticipated. The Company does not undertake to update such forward-looking statements.
Item 3. 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. There has been no material change in the Company’s assessment of its sensitivity to foreign currency exchange rate risk since its presentation set forth, in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in its 20072008 Annual Report on Form 10-K. As of September 30, 2008,March 31, 2009, the Company had interest rate swap agreements of $150.0, $250.0 $150.0 and $250.0 that fix the Company’s LIBOR interest rate at 4.85%4.40%, 4.40%4.65% and 4.73%, respectively, expiring in December 2008,2009, December 2009 and July 2010, respectively. In October 2007, the Company entered into interest rate swaps that fix the Company’s LIBOR interest rate on $250.0As of floating rate bank debt at 4.65% which go into effect in December 2008 and expire in December 2009. At September 30, 2008,March 31, 2009, the Company’s average LIBOR rate was 4.51%3.64%. A 10% change in the LIBOR interest rate at September 30, 2008March 31, 2009 would have the effect of increasing or decreasing interest expense by approximately $0.4.$0.1. The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2008,2009, although there can be no assurances that interest rates will not significantly change.
Item 4. Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the period covered by this report. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed,
18
summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management, including the Company’s principal executive and financial officers, to allow timely decisions regarding required disclosure. There has been no change in the Company’s internal controls over financial reporting during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
PART II - - OTHER INFORMATION
Item 1.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
20
liability with respect to such matters cannot be precisely determined, in the opinion of management, such matters are not expected to have a material adverse effect on the Company’s financial condition or results of operations.
Item 1A.Risk Factors
There have been no material changes to the Company’s risk factors as disclosed in Part I, Item 1A of the Company’s 2008 Annual Report on Form10-K for the year ended December 31, 2007. 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Repurchase of Equity Securities
The Company maintains an open-market stock repurchase program (the “Program”)expiring January 31, 2010 to repurchase up to 20 million shares of its common stock. In January 2008, theThe Company announced that its Board of Directors authorized an increase to the number of shares which may be purchased under the Program from 10 million to 20 milliondid not purchase any shares of its common stock in addition to extendingduring the Program’s maturity date from Decemberthree months ended March 31, 2008 to January2009. As of March 31, 2010. At September 30, 2008,2009, approximately 7.81.8 million shares of common stock may be repurchasedpurchased under the Program.program.
Period |
| (a) Total |
| (b) Average Price |
| (c) Total Number |
| (d) Maximum |
| |
January 1 to |
| 1,797,881 |
| $ | 39.68 |
| 10,224,475 |
| 9,775,525 |
|
February 1 to |
| 1,123,985 |
| 37.97 |
| 11,348,460 |
| 8,651,540 |
| |
March 1 to |
| 835,337 |
| 35.16 |
| 12,183,797 |
| 7,816,203 |
| |
April 1 to |
| — |
| — |
| — |
| — |
| |
May 1 to |
| — |
| — |
| — |
| — |
| |
June 1 to |
| — |
| — |
| — |
| — |
| |
July 1 to |
| — |
| — |
| — |
| — |
| |
August 1 to |
| — |
| — |
| — |
| — |
| |
September 1 to |
| — |
| — |
| — |
| — |
| |
Total |
| 3,757,203 |
| $ | 38.24 |
| 12,183,797 |
| 7,816,203 |
|
21
Item 3.Defaults Upon Senior Securities
None
Item 4.Submission of Matters to a Vote of Security Holders
None
Item 5.Other Information
None
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Item 6.Exhibits –—
3.1 |
| 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).* |
3.2 |
| Amended and Restated Certificate of Incorporation, dated April 24, 2000 (filed as Exhibit 3.1 to the Form 8-K filed on April 28, |
3.3 |
| Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated May 26, 2004 (filed as Exhibit 3.1 to the June 30, 2004 10-Q).* |
3.4 |
| Second Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated May 23, 2007 (filed as Exhibit 3.4 to the December 31, 2007 10-K).* |
10.1 |
| Receivables Purchase Agreement dated as of July 31, 2006 among Amphenol Funding Corp., the Company, Atlantic Asset Securitization LLC and Calyon New York Branch, as Agent (filed as Exhibit 10.10 to the June 30, 2006 10-Q).* |
10.2 |
| Purchase and Sales Agreement dated as of July 31, 2006 among the Originators named therein, Amphenol Funding Corp. and the Company (filed as Exhibit 10.13 to the June 30, 2006 10-Q).* |
10.3 |
| 1997 Option Plan for Key Employees of Amphenol and Subsidiaries (filed as Exhibit 10.16 to the June 30, 1997 10-Q).* |
10.4 |
| Amended 1997 Option Plan for Key Employees of Amphenol and Subsidiaries (filed as Exhibit 10.19 to the June 30, 1998 |
10.5 |
| Fourth Amended 2000 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (filed as Exhibit 10.20 to the June 30, 2007 10-Q).* |
10.6 |
| Form of 1997 Management Stockholders’ Agreement (filed as Exhibit 10.50 to the December 31, 2004 10-K).* |
10.7 |
| Form of 1997 Non-Qualified Stock Option Agreement (filed as Exhibit 10.51 to the December 31, 2004 10-K).* |
10.8 |
| Form of 2000 Management Stockholders’ Agreement as of May 24, 2007 (filed as Exhibit 10.25 to the June 30, 2007 |
10.9 |
| Form of 2000 Non-Qualified Stock Option Grant Agreement Amended as of May 24, 2007 (filed as Exhibit 10.28 to the June 30, 2007 10-Q).* |
10.10 |
| Management Agreement between the Company and Martin H. Loeffler, dated July 28, 1987 (filed as Exhibit 10.7 to the 1987 Registration Statement).* |
10.11 |
| Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.7 to the December 31, 2001 10-K).* |
10.12 |
| First Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.42 to the December 31, 2006 10-K).* |
10.13 |
| Second Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.43 to the December 31, 2006 10-K).* |
10.14 |
| Third Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.44 to the December 31, 2006 10-K).* |
10.15 |
| Fourth Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002(filed as Exhibit 10.45 to the December 31, 2006 10-K).* |
10.16 |
| Fifth Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.46 to the December 31, 2006 10-K).* |
10.17 |
| Sixth Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.47 to the December 31, 2006 10-K).* |
10.18 |
| Seventh Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.38 to the December 31, 2007 10-K).* |
10.19 |
| Eighth Amendment to the Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2002 (filed as Exhibit 10.22 to the June 30, 2008 10-Q).* |
10.20 |
| Amphenol Corporation Supplemental Employee Retirement Plan formally adopted effective January 25, 1996 (filed as Exhibit 10.18 to the 1996 10-K).* |
10.21 |
| First Amendment (2000-1) to the Amphenol Corporation Supplemental Employee Retirement Plan (filed as Exhibit 10.18 to the September 30, 2004 10-Q).* |
10.22 |
| Second Amendment (2004-1) to the Amphenol Corporation Supplemental Employee Retirement Plan (filed as Exhibit 10.19 to the |
10.23 |
| Third Amendment (2006-1) to the Amphenol Corporation Supplemental Employee Retirement Plan (filed as Exhibit 10.51 to the December 31, 2006 10-K).* |
23
10.24 | Amended and Restated Amphenol Corporation Supplemental Employee Retirement Plan (filed as Exhibit 10.24 to the December 31, 2008 10-K).* | |
10.25 |
| Amphenol Corporation Directors’ Deferred Compensation Plan (filed as Exhibit 10.11 to the |
20
December 31, 1997 10-K).* | ||
|
| The 2004 Stock Option Plan for Directors of Amphenol Corporation (filed as Exhibit 10.44 to the June 30, 2004 10-Q).* |
|
| The Amended 2004 Stock Option Plan for Directors of Amphenol Corporation (filed as Exhibit 10.29 to the June 30, 2008 |
|
| 2006 Amphenol Corporation Management Incentive Plan (filed as Exhibit 10.48 to the December 31, 2005 10-K).* |
|
| 2007 Amphenol Corporation Management Incentive Plan (filed as Exhibit 10.46 to the June 30, 2007 10-Q).* |
|
| 2008 Amphenol Corporation Management Incentive Plan (filed as Exhibit 10.30 to the March 31, 2008 10-Q).* |
| 2009 Amphenol Corporation Management Incentive Plan.** | |
10.32 | 2009 Amphenol Corporation Executive Incentive Plan.** | |
10.33 |
| Credit Agreement, dated as of July 15, 2005, among the Company, certain subsidiaries of the Company, a syndicate of financial institutions and Bank of America, N.A. acting as the administrative agent (filed as |
|
| First Amendment to Credit Agreement dated as of December 14, 2005 among the Company, certain subsidiaries of the Company, a syndicate of financial institutions and Bank of America, N.A. acting as the administrative agent (filed as Exhibit 10.45 to the March 31, 2007 10-Q).* |
|
| Second Amendment to Credit Agreement dated as of August 1, 2006 among the Company, certain subsidiaries of the Company, a syndicate of financial institutions and Bank of America, N.A. acting as the administrative agent (filed as Exhibit 10.55 to the June 30, 2006 10-Q).* |
| Continuing Agreement for Standby Letters of Credit between Amphenol Corporation and Deutsche Bank.** | |
10.37 |
| 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).* |
|
| 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).* |
|
| |
|
| Amphenol Corporation Employee Savings/401(k) Plan Document (filed as Exhibit 10.58 to the March 31, 2006 10-Q).* |
|
| Amphenol Corporation Employee Savings/401(k) Plan Adoption Agreement (filed as Exhibit 10.59 to the March 31, 2006 |
|
| First Amendment (2006-1) to Amphenol Corporation Employee Savings/401(k) Plan Adoption Agreement (filed as Exhibit 10.68 to the December 31, 2006 10-K).* |
|
| Second Amendment (2006-2) to Amphenol Corporation Employee Savings/401(k) Plan Adoption Agreement (filed as Exhibit 10.69 to the December 31, 2006 10-K).* |
|
| Third Amendment (2008-1) to Amphenol Corporation Employee Savings/401(k) Plan Adoption Agreement (filed as Exhibit 10.43 to the June 30, 2008 10-Q).* |
|
| Fourth Amendment (2008-2) to Amphenol Corporation Employee Savings/401(k) Plan Adoption Agreement (filed as Exhibit 10.44 to the June 30, 2008 10-Q).* |
|
| Amphenol Corporation Supplemental Defined Contribution Plan (filed as Exhibit 10.54 to the March 31, 2007 10-Q).* |
| Restated Amphenol Corporation Supplemental Defined Contribution Plan Adoption Agreement (filed as Exhibit 10.44 to the December 31, 2008 10-K).* | |
10.47 |
| First Amendment (2007-1) to the Amphenol Corporation Supplemental Defined Contribution Plan (filed as Exhibit 10.55 to the March 31, 2007 |
10.48 | Continuing Agreement for Standby Letters of Credit between Amphenol Corporation and Deutsche Bank.** | |
31.1 |
| Certification pursuant to Exchange Act Rules 13a-14 and 15d-14; as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ** |
31.2 |
| Certification pursuant to Exchange Act Rules 13a-14 and 15d-14; as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ** |
32.1 |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** |
32.2 |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** |
* Incorporated herein by reference as stated.
** Filed herewith
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SIGNATURE
Pursuant to the requirements 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.
| AMPHENOL CORPORATION | ||
�� |
|
| |
|
|
| |
| By: | /s/ Diana G. Reardon | |
|
| Diana G. Reardon | |
Authorized Signatory |
Date: NovemberMay 6, 20082009
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