SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1997
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to _____________________
Commission file number 1-10879
AMPHENOL CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 22-2785165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
358 Hall Avenue, Wallingford, Connecticut 06492
203-265-8900
(Address, including zip code, and telephone
number, including area code, of Registrant's
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, $.001 par value New York Stock Exchange, Inc.
(Title of each Class) (Name of each Exchange
on which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of Amphenol Corporation Common Stock, $.001 Par
Value, held by non-affiliates was approximately $257 million based on the
reported last sale price of such stock on the New York Stock Exchange on
February 27, 1998.
As of February 27, 1998 the total number of shares outstanding of Common Stock
was 17,533,248.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement which is expected to be
filed within 120 days following the end of the fiscal year covered by this
report, are incorporated by reference into Part III hereof.
<PAGE>
INDEX Page
PART I 3
Item 1. Business 3
General 3
Product Development 4
Product Groups 4
International Operations 6
Customers 6
Manufacturing 7
Research and Development 7
Trademarks and Patents 7
Competition 8
Backlog 8
Employees 8
Cautionary Statements for Purposes of Forward Looking
Information 9
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security-Holders 13
Item 4.1 Executive Officers 13
PART II 14
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 19
Report of Management 19
Independent Auditors' Reports 19
Consolidated Statement of Income 20
Consolidated Balance Sheet 21
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) 22
Consolidated Statement of Cash Flow 23
Notes to Consolidated Financial Statements 24
Item 9. Changes in and Disagreements with Independent Accountants on
Accounting and Financial Disclosure 36
PART III 36
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV 37
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 37
Signature of the Registrant 41
Signatures of the Directors 41
2
<PAGE>
PART I
Item 1. Business
General
Amphenol Corporation ("Amphenol" or the "Company") is a leading designer,
manufacturer and marketer of electrical, electronic and fiber optic connectors,
interconnect systems and coaxial and flat-ribbon cable. The primary end markets
for the Company's products are telephone, wireless and data communications
systems; cable television systems; commercial and military aerospace
electronics; automotive and mass transportation applications; and industrial
factory automation equipment. For the year ended December 31, 1997,
approximately 53% of the Company's net sales were to the worldwide
communications market (including 23% for the cable television market), 24% were
for commercial and military aerospace and other military electronics
applications and 23% were for industrial, transportation and other applications.
The Company focuses on optimizing its mix of higher margin application-specific
products in its product offerings and maintaining continuing programs of
productivity improvement. As a result of these initiatives, the Company's
operating profit margin has increased from 13.5% in fiscal year 1993 to 17.6% in
fiscal year 1997.
The Company designs and manufactures connectors and interconnect systems
which are used primarily to conduct electrical and optical signals for a wide
range of sophisticated electronic applications. The Company believes, based
primarily on published market research, that it is one of the largest connector
manufacturers in the world and the leading supplier of high performance
environmental connectors that require superior performance and reliability under
conditions of stress and in hostile environments. Such conditions are frequently
encountered in commercial and military aerospace applications and other
demanding industrial applications such as natural resource exploration, medical
instrumentation and off-road construction. In addition, the Company has
developed a broad range of interconnect products to serve the rapidly growing
markets of wireless communications including cellular and personal communication
networks and fiber optic networks; electronic commerce including smart cards and
electronic purse applications; and automotive safety products including airbags,
pretensioner seatbelts and anti-lock braking systems. The Company is also one of
the leaders in developing interconnect products for factory automation and
machine tools and develops interconnect products for mass transportation
applications. The Company believes that the worldwide industry for interconnect
products and systems is highly fragmented with over 1,000 producers of
connectors worldwide, of which the 10 largest accounted for a combined market
share of approximately 37% in 1997. The Company estimates that the total sales
for the industry were approximately $29 billion in 1997.
The Company's Times Fiber subsidiary is the world's second largest
producer of coaxial cable for the cable television market. The Company believes
that Times Fiber is one of the lowest cost producers of coaxial cable for the
cable television market, and that it is one of the technological leaders in
increasing the bandwidth of coaxial cable products. The Company's coaxial cable
and connector products are used in cable television systems including full
service cable television/telecommunication systems being installed by cable
operators and telecommunication companies offering video, voice and data
services. The Company also is a major supplier of coaxial cable to the
developing international cable television markets. In addition, the Company has
developed coaxial cable products, in conjunction with connector products, used
in the infrastructure for wireless communication systems.
The Company is a global manufacturer employing advanced manufacturing
processes. The Company's products are manufactured and assembled at facilities
in the United States, Canada, Mexico, Germany, France, the United Kingdom, the
Czech Republic, Estonia, Taiwan, Japan, India and the People's Republic of
China. The Company's connector products are sold through its global sales force
and independent manufacturers' representatives to thousands of original
equipment manufacturers ("OEMs") in 51 countries throughout the world as well as
3
<PAGE>
through a global network of electronics distributors. The Company's coaxial
cable products are primarily sold to cable television operators and to
telecommunication companies who have entered the broadband communications
market. In 1997, approximately 58% of the Company's net sales were in North
America, 28% were in Europe and 14% were in Asia and other countries.
Product Development
The Company's product development strategy is to offer a broad range of
products to meet the specific interconnect requirements of its customers in its
target markets. The Company's market focus is primarily in interconnect products
for the: (1) wireless, telecom and data communications market; (2) broadband
communications, primarily cable television and the developing markets for full
service television, telephone and data communication broadband networks; (3)
commercial and military aerospace markets; (4) industrial markets, primarily
factory automation and mass transportation; and (5) automotive electronics,
primarily automotive safety devices such as airbags, pretensioner seatbelts and
anti-lock braking systems. The Company implements its product development
strategy through product design teams and collaboration arrangements with
customers which result in obtaining approved vendor status for the customer's
new products and programs. The Company further seeks to have its products become
widely accepted within the industry for similar applications and products
manufactured by other potential customers, thereby providing additional sources
of future revenue. The development of application-specific products has
decreased the significance of standard products which generally experience
greater pricing pressure. In addition to product design teams and customer
collaboration arrangements, the Company uses key account managers to manage
customer relationships on a global basis such that the Company can bring to bear
its total resources to meet the worldwide needs of its multinational customers.
The Company is also focused on making strategic acquisitions in certain markets
to further broaden and enhance its product offerings and expand its global
capabilities.
Product Groups
The following table sets forth the dollar amounts of the Company's net
sales for each major product group. For a discussion of factors affecting
changes in sales by product category, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
1997 1996 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
Net sales by product group:
Commercial, radio frequency and
industrial interconnect products,
cable assemblies and flat-ribbon cable $451,525 $388,941 $370,619
High performance environmental
connectors 246,036 208,071 174,329
Coaxial cable 186,787 179,209 238,285
-------- -------- --------
$884,348 $776,221 $783,233
======== ======== ========
Net sales by geographic area:
United States operations $462,349 $397,023 $394,563
International operations (1) 421,999 379,198 388,670
-------- -------- --------
$884,348 $776,221 $783,233
======== ======== ========
- ----------
(1) Includes international coaxial cable sales, which are primarily export
sales.
4
<PAGE>
Commercial, Radio Frequency and Industrial Interconnect Products, Cable
Assemblies and Flat-Ribbon Cable. The Company produces a broad range of
commercial and industrial interconnect products. Such products include: fiber
optic interconnect products and systems used in fiber optic networks for voice,
video and data communications; chip card acceptor interconnect devices and
readers used in conjunction with smart cards and electronic purses (a system for
cashless monetary transactions); industrial interconnect products used in a
variety of applications such as factory automation equipment, mass
transportation applications including railroads and marine transportation; and
automotive safety products including interconnect devices and systems used in
automotive airbags, pretensioner seatbelts and anti-lock braking systems. The
Company designs and produces a broad range of radio frequency connector products
used in telecommunications, computer and office equipment, instrumentation
equipment, local area networks, aerospace and military electronic applications.
The Company's radio frequency connectors are used in base stations, hand held
sets and other components of cellular and personal communications networks. The
Company has also developed a broad line of radio frequency connectors for
coaxial cable for full service cable television/telecommunication networks. The
Company also designs and produces highly-engineered cable assemblies. Such
assemblies are specially designed by the Company in conjunction with OEM
customers for specific applications, primarily for computer, communications and
office equipment systems. The cable assemblies utilize the Company's connector
and cable products as well as components purchased from others. The Company is
also a leading producer of flat-ribbon cable, a cable made of wires assembled
side by side such that the finished cable is flat. Flat-ribbon cable is used to
connect internal components in systems with space and component configuration
limitations. The product is used in computer and office equipment components as
well as in a variety of telecommunications applications.
High Performance Environmental Connectors. The Company believes, based
primarily on published market research, that it is the largest supplier of
circular, military-specification connectors; such connectors require superior
performance and reliability under conditions of stress and in hostile
environments. High performance environmental connectors are generally used to
interconnect electronic and fiber optic systems in sophisticated aerospace,
military, commercial and industrial equipment. These applications present
demanding technological requirements in that the connectors are subject to rapid
and severe temperature changes, vibration, humidity or nuclear radiation.
Frequent applications of these connectors include aircraft, guided missiles,
radar, military vehicles, equipment for spacecraft, energy, medical
instrumentation and geophysical applications and off-road construction
equipment. Specially designed high performance environmental connectors, which
include fiber optic, filtered, nonmetallic, diode and breakaway connectors, are
manufactured to specific customer input/output configurations.
Coaxial Cable. The Company designs, manufactures and markets coaxial cable
primarily for use in the cable television industry. The Company manufactures two
primary types of coaxial cable: semi-flexible, which has an aluminum tubular
shield, and flexible, which has one or more braided metallic shields.
Semi-flexible coaxial cable is used in the trunk and feeder distribution portion
of cable television systems, and flexible cable (also known as drop cable) is
used primarily for hookups from the feeder cable to the cable television
subscriber's residence. Flexible cable is also used in other communications
applications.
The rapid developments in fiber optic technologies, digital compression
(which allows several channels to be transmitted within the same bandwidth that
a single analog channel currently requires) and other communication
technologies, including the Company's development of higher capacity coaxial
cable, have resulted in technologies which are expected to give cable television
systems channel capacity in excess of 500 channels. Such expanded channel
capacity, along with other component additions, will permit cable operators to
offer full service networks with a variety of capabilities including near
video-on-demand, pay-per-view special events, home shopping networks,
interactive entertainment and education services, telephone services and
high-speed access to data resources such as the Internet. With respect to
expanded channel capacity systems, cable
5
<PAGE>
operators have generally adopted, and the Company believes that for the
foreseeable future will continue to adopt, a cable system using both fiber optic
cable and coaxial cable. Such systems combine the advantages of fiber optic
cable in transmitting clear signals over a long distance without amplification,
with the advantages of coaxial cable in ease of installation, low cost and
compatibility with the receiving components of the customer's communications
devices. The Company believes that while system operators are likely to increase
their use of fiber optic cable for the trunk and feeder portions of the cable
systems, there will be an ongoing need for high capacity coaxial cable for the
local distribution and street-to-the-home portions of the cable system.
U.S. cable system designs are increasingly being employed in international
markets where cable television penetration is low. For example, it is estimated
that in 1997 only 28% of the television households in Europe subscribed to some
form of multichannel television service as compared to an estimated subscription
rate of 66% in the U.S. The estimated subscription rates in the Asian and Latin
American markets were even lower at approximately 14% and 11%, respectively. In
terms of television households, it is estimated that there were 248 million
television households in Europe, 377 million in Asia and 93 million in Latin
America. This compares to an estimated 96 million television households in the
U.S. In 1997, the Company had sales of coaxial cable in approximately 50
countries, and the Company believes the development of cable television systems
in international markets presents a significant opportunity to increase sales of
its coaxial cable products.
International Operations
The Company believes that its global presence is an important competitive
advantage as it allows the Company to provide quality products on a timely and
worldwide basis to its multinational customers. Approximately 48% of the
Company's sales for the year ended December 31, 1997 were outside the United
States. Approximately 59% of such international sales were in Europe. The
Company has manufacturing and assembly facilities in the United Kingdom,
Germany, France, the Czech Republic, Estonia and sales offices in most European
markets. The European operations generally have strong positions in their
respective local markets. Local operations coordinate product design and
manufacturing responsibility with the Company's other operations around the
world. The balance of the Company's international activities are located
primarily in Canada, Mexico and the Far East, which includes manufacturing
facilities in Taiwan, India, Japan and the People's Republic of China. The
Company's manufacturing and assembly facilities generally serve the respective
local markets. In addition, the Company has low cost manufacturing and assembly
sources in Scotland, Estonia, the Czech Republic, Mexico and the People's
Republic of China to serve regional and world markets.
Customers
The Company's products are used in a wide variety of applications by
numerous customers, none of whom accounted for more than 5% of the Company's
sales for 1997 (except for sales under contract with the U.S. Government and its
subcontractors, which accounted for 9% of 1997 sales). The Company's
participation across a broad spectrum of government programs is such that the
Company believes that no one government program accounted for more than 2% of
1997 net sales. The Company's products are sold both directly to OEMs, cable
system operators, telecommunication companies and through distributors. There
has been a trend on the part of OEM customers to consolidate their lists of
qualified suppliers to companies that have a global presence, can meet quality
and delivery standards, have a broad product portfolio and design capability,
and have competitive prices. The Company has focused its global resources to
position itself to compete effectively in this environment. The Company has
concentrated its efforts on service and productivity improvements including
advanced computer aided design and manufacturing systems, statistical process
controls and just-in-time inventory programs to increase product quality and
shorten product delivery schedules. The Company's strategy is to provide a broad
selection of products in the areas in which it competes. The Company has
achieved a preferred supplier designation from many of its OEM customers.
6
<PAGE>
The Company's sales to distributors represented approximately 27% of the
Company's 1997 sales. The Company's recognized brand names including "Amphenol,"
"Times Fiber," "Pyle-National," "Spectra-Strip," "Sine," "Tuchel," "Kai Jack"
and "Socapex," together with the Company's strong connector design-in position
(products that are specified in the plans and qualified by the OEM), enhance its
ability to reach the secondary market through its network of distributors. The
Company believes that its distributor network represents a competitive
advantage.
Manufacturing
The Company employs advanced manufacturing processes including molding,
stamping, plating, turning, extruding, die casting and assembly operations as
well as proprietary process technology for flat-ribbon and coaxial cable
production. The Company's manufacturing facilities are generally vertically
integrated operations from the initial design stage through final design and
manufacturing. Outsourcing of certain fabrication processes is used when
cost-effective. Substantially all of the Company's manufacturing facilities are
certified to the ISO9000 series of quality standards.
The Company employs a global manufacturing strategy to lower its
production costs and to improve service to customers. The Company sources its
products on a worldwide basis with manufacturing and assembly operations in the
United States, Canada, Mexico, the United Kingdom, France, Germany, the Czech
Republic, Estonia, Taiwan, India, Japan and the People's Republic of China. To
better serve high volume OEM customers, the Company has established just-in-time
facilities near major customers.
The Company's policy is to maintain strong cost controls in its
manufacturing and assembly operations. The Company has undertaken programs to
rationalize its production facilities, reduce plant and corporate overhead
expense and maximize the return on capital expenditures. The programs to improve
productivity are ongoing.
The Company purchases a wide variety of raw materials for the manufacture
of its products, including precious metals such as gold and silver used in
plating; brass, copper, aluminum and steel used for cable, contacts and
connector shells; and plastic materials used for cable and connector bodies and
inserts. All such raw materials are readily available throughout the world and
are purchased locally from a variety of suppliers. The Company is not dependent
upon any one source for raw materials or if one source is used, alternate
sources of supply are available.
Research and Development
The Company's research, development and engineering expenditures for the
creation and application of new and improved products and processes were $15.3
million, $14.6 million and $15.7 million (excluding customer sponsored programs
representing expenditures of $0.2 million, $0.9 million and $1.3 million) for
1997, 1996 and 1995, respectively. The Company's research and development
activities focus on selected product areas and are performed by individual
operating divisions. Generally, the operating divisions work closely with OEM
customers to develop highly engineered products that meet the customer's needs.
The Company continues to focus its research and development efforts primarily on
those product areas that it believes have the potential for broad market
applications and significant sales within a one-to-three year period.
Trademarks and Patents
The Company owns a number of active patents worldwide. While the Company
considers its patents to be valuable assets, the Company does not believe that
its competitive position is dependent on patent protection
7
<PAGE>
or that its operations are dependent on any individual patent. The Company
regards its trademarks "Amphenol," "Pyle-National," "Tuchel," "Socapex,"
"Spectra-Strip," "Sine," "Kai Jack" and "Times Fiber" to be of value in its
businesses. The Company has exclusive rights in all its major markets to use
these registered trademarks.
Competition
The Company encounters competition in substantially all areas of its
business. The Company competes primarily on the basis of product quality, price,
engineering, customer service and delivery time. Competitors include large,
diversified companies, some of which have substantially greater assets and
financial resources than the Company, as well as medium to small companies. In
the area of coaxial cable for cable television, the Company believes that it and
CommScope, Inc. are the primary providers of such cable; however, CommScope is
larger than the Company in this market. In addition, the Company faces
competition from smaller companies that have concentrated their efforts in one
or more areas of the coaxial cable market.
Backlog
The Company estimates that its backlog of unfilled orders was $209.2
million and $207.4 million at December 31, 1997 and 1996, respectively. Orders
typically fluctuate from quarter to quarter based on customer demands and
general business conditions. Unfilled orders may be cancelled prior to shipment
of goods; however, such cancellations historically have not been material. It is
expected that all or a substantial portion of the backlog will be filled within
the next 12 months. Significant elements of the Company's business, such as
sales to the cable television industry, distributors, the computer industry, and
other commercial customers, generally have short lead times. Therefore, backlog
may not be indicative of future demand.
Employees
As of December 31, 1997, the Company had approximately 6,900 full-time
employees worldwide. Of these employees, approximately 4,900 were hourly
employees, of which approximately 3,000 were represented by labor unions, and
the remainder were salaried. Beginning on October 21, 1995, the Company
experienced a seven day work stoppage at its plant in Sidney, New York when
approximately 1,000 hourly employees represented by the International
Association of Machinists and Aerospace Workers rejected a Company proposal and
voted to strike upon the expiration of their then current collective bargaining
contract. A new three year contract was approved and the work stoppage ended on
October 28, 1995. The Sidney, New York plant manufactures interconnect products
used primarily in the aerospace industry and other commercial and industrial
markets. The one week work stoppage did not involve any other operation of the
Company. The Company has not had any other work stoppages in the past ten years.
In 1997, the United Steelworkers International Union, AFL-CIO established a
union, affecting approximately 500 employees, at the Company's plant in Chatham,
Virginia, the Company's primary plant for the production of coaxial cable. The
Company is in the process of negotiating the initial contract with the union.
The Company believes that it has a good relationship with its unionized and
non-
8
<PAGE>
unionized employees.
Cautionary Statements for Purposes of Forward Looking Information
Statements made by the Company in written or oral form to various persons,
including statements made in filings with the SEC, that are not strictly
historical facts are "forward looking" statements. Such statements should be
considered as subject to uncertainties that exist in the Company's operations
and business environment. The following includes some, but not all, of the
factors or uncertainties that could cause the Company to fail to conform with
expectations and predictions:
- - A global economic slowdown in any one, or all, of the Company's market
segments.
- - The effects of extreme changes in monetary and fiscal policies in the U.S.
and abroad including extreme currency fluctuations and unforeseen
inflationary pressures.
- - Drastic and unforeseen price pressure on the Company's products or
significant cost increases that cannot be recovered through price
increases or productivity improvements.
- - Increased difficulties in obtaining a consistent supply of basic materials
like steel, aluminum, copper, gold or plastic resins at stable pricing
levels.
- - Unpredictable difficulties or delays in the development of new product
programs.
- - Significant changes in interest rates or in the availability of financing
for the Company or certain of its customers.
- - Rapid escalation of the cost of regulatory compliance and litigation.
- - Unexpected government policies and regulations affecting the Company or
its significant customers.
- - Unforeseen intergovernmental conflicts or actions, including but not
limited to armed conflict and trade wars.
- - Difficulties and unanticipated expense of assimilating newly-acquired
businesses.
- - Any difficulties in obtaining or retaining the management and other human
resource competencies that the Company needs to achieve its business
objectives.
- - The risks associated with any technological shifts away from the Company's
technologies and core competencies. For example, a technological shift
away from the use of coaxial cable in cable television/ telecommunication
systems could have a substantial impact on the Company's coaxial cable
business.
- - Unforeseen interruptions to the Company's business with its largest
customers and distributors resulting from, but not limited to, strikes,
financial instabilities or inventory excesses.
9
<PAGE>
Item 2. Properties
The table below presents the location, size and function of the Company's
principal manufacturing and assembly facilities as of January 31, 1998. The
Company's principal executive offices are located in Wallingford, Connecticut.
Square
Location Feet Function
-------- ------ --------
United States:
Chatham, VA 175,000 coaxial cable manufacturing
Chatham, VA (1) 100,000 coaxial cable warehousing
Chatham, VA (1) 40,000 coaxial cable manufacturing and
warehousing
Danbury, CT (1) 170,000 RF connector manufacturing
Danville, VA (1) 80,000 coaxial cable warehousing
Elmhurst, IL (1) 10,000 industrial connector assembly
Endicott, NY 125,000 cable assembly
Hamden, CT 60,000 cable manufacturing
Hamden, CT (1) 25,000 cable warehousing
Lisle, IL (1) 28,000 fiber optic connector manufacturing
Meriden, CT (1) 82,250 cable manufacturing
Mt. Clemens, MI (1) 71,360 industrial connector manufacturing
and assembly
Nogales, AZ (1) 20,250 connector warehousing and assembly
Parsippany, NJ (1) 32,500 RF connector manufacturing
Phoenix, AZ (1) 12,000 coaxial cable warehousing
Sidney, NY 685,000 high performance environmental
connector
manufacturing and assembly
Wallingford, CT (1) 28,800 Executive offices
Canada:
Renfrew, Ontario (1) 26,000 coaxial cable manufacturing
Scarborough, Ontario (1) 88,000 high performance connector
manufacturing
Belleville, Ontario (1) 6,000 ceramic tubes, planar and discrete
filter manufacturing
Mexico:
Nogales (1) 27,558 connector assembly
Nogales (1) 12,700 connector assembly
Nogales (1) 57,884 connector assembly
United Kingdom:
Greenock, Scotland (1) 10,000 cable assembly
Nottingham, England (1) 11,000 high performance environmental
connector manufacturing and cable
assembly
Romsey, England (1) 24,000 cable manufacturing and cable
assembly
Whitstable, England 135,000 connector manufacturing, cable
assembly and coaxial cable
warehousing
Germany:
Heilbronn 130,000 connector manufacturing and cable
assembly
10
<PAGE>
Czech Republic:
Klucouska (1) 16,300 connector assembly
Estonia:
Tallinn (3) 10,750 connector and cable assembly
France:
Dole 121,000 connector manufacturing
Thyez 125,000 connector manufacturing
Taiwan
Taoyuan Hsien (1) 15,700 cable assembly
Tainan (1) 64,600 RF connector manufacturing and
assembly
Japan:
Ritto-cho, Shiga (1) 15,700 connector and cable assembly and
warehousing
India:
Pune (2) 53,400 connector manufacturing and
assembly
Bangalore 12,200 connector manufacturing and
assembly
China:
Changzhou 35,000 coaxial cable manufacturing and
warehousing
Changzhou 30,000 connector and cable assembly
Shenzen (3) 75,000 cable and connector manufacturing
and assembly
(1) These facilities are leased. Such leases expire at various times through
2008.
(2) This facility is owned but is situated on property subject to a long term
lease arrangement, expiring in 2065.
(3) Dedicated contract manufacturing facility.
The Company estimates that during 1997 its principal manufacturing
facilities operated at between 70% and 95% of capacity.
In addition to the facilities described above, the Company leases various
warehouses and sales and administrative offices.
Item 3. Legal Proceedings
On January 23, 1997 the Board of Directors approved, subject to
shareholder approval and certain other closing conditions, and the Company
entered into an agreement and plan of merger (the "Merger Agreement"), with NXS
Acquisition Corp., a wholly owned subsidiary of KKR 1996 Fund L.P., a limited
partnership formed at the direction of Kohlberg Kravis Roberts & Co. L.P. The
Merger Agreement contemplated that approximately 90% of the Company's Class A
common stock would be converted into $26.00 in cash and approximately 10% of
such shares would be retained by the stockholders. The proposed transaction was
announced to the public on January 23, 1997 and on that same date the Company
and its directors were named as defendants in a complaint filed in the Court of
Chancery in the State of Delaware by stockholders of the Company, individually
and as a class action on behalf of all stockholders of the Company. An identical
complaint was subsequently filed by other stockholders of the Company. In
general, the complaints alleged that the Company's directors breached their
fiduciary duties to stockholders when they approved the Merger Agreement. On May
9, 1997 the parties to the
11
<PAGE>
lawsuits signed a Memorandum of Understanding which effectively settled the
lawsuits. The terms of the settlement are subject to the approval of the Court
of Chancery in the State of Delaware which the Company expects to receive. The
terms of settlement as set forth in the Memorandum of Understanding will have no
material effect on the Company's financial condition or results of operations.
The Company and its subsidiaries have been named as defendants in several
other legal actions in which various amounts are claimed arising from normal
business activities. Although the amount of any ultimate liability with respect
to such matters cannot currently be precisely determined, in the opinion of
management, such matters are not expected to have a material effect on the
Company's financial condition or results of operations.
Certain operations of the Company are subject to federal, state and local
environmental laws and regulations which govern the discharge of pollutants into
the air and water, as well as the handling and disposal of solid and hazardous
wastes. The Company believes that its operations are currently in substantial
compliance with all applicable environmental laws and regulations and that the
costs of continuing compliance will not be material to the Company's financial
condition or results of operations.
Subsequent to the acquisition of Amphenol from Allied Signal Corporation
("Allied") in 1987, Amphenol and Allied have been named jointly and severally
liable as potentially responsible parties in relation to several environmental
cleanup sites. Amphenol and Allied have jointly consented to perform certain
investigations and remedial and monitoring activities at two sites and they have
been jointly ordered to perform work at another site. The responsibility for
costs incurred relating to these sites is apportioned between Amphenol and
Allied based on an agreement entered into in connection with the acquisition.
For sites covered by this agreement, to the extent that conditions or
circumstances occurred or existed at the time of or prior to the acquisition,
the first $13.0 million of costs are borne by Amphenol and were incurred as of
December 31, 1996. Allied is obligated to pay 80% of the excess over $13 million
and 100% of the excess over $30 million. Allied representatives are presently
working closely with the Company in addressing the most significant potential
environmental liabilities including the Sidney Center landfill and the
Richardson Hill landfill projects, as described below.
Owners and occupiers of sites containing hazardous substances, as well as
generators of hazardous substances, are subject to broad liability under various
federal and state environmental laws and regulations, including expenditures for
cleanup costs and damages arising out of past disposal activities. Such
liability in many cases may be imposed regardless of fault or the legality of
the original disposal activity. The Company is currently performing
investigative and monitoring activities at its manufacturing site in Sidney, New
York. In addition, the Company is currently voluntarily performing monitoring,
investigation, design and cleanup activities at two local, public off-site
disposal sites previously utilized by the Sidney facility and others. The
Company is also performing proposed remedial design activities and currently is
negotiating with respect to a third site. The Company and Allied have entered
into an administrative consent order with the United States Environmental
Protection Agency (the "EPA") and are presently determining necessary and
appropriate remedial measures for one such site (the "Richardson Hill" landfill)
used by Amphenol and other companies, which has been designated a "Superfund"
site on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980. With respect to the second
site, (the "Route 8" landfill), used exclusively by Amphenol, the Company
initiated a remediation program pursuant to a Consent Order with the New York
Department of Environmental Protection and is continuing to monitor the results
of those remediation efforts. In December 1995 the Company and Allied received a
letter from the EPA demanding that the Company and Allied accept responsibility
for the investigation and cleanup of the Sidney Center landfill, another
Superfund Site. The Sidney Center landfill was a municipal landfill site
utilized by the Company's Sidney facility and other local towns and businesses.
The Company has acknowledged that it sent general plant refuse but no hazardous
waste to the Sidney Center landfill site. In 1996 the Company and Allied
received a unilateral order from the EPA directing the Company and Allied to
perform certain investigation, design and cleanup activities at the Sidney
Center landfill site. The Company and Allied responded to the unilateral order
by agreeing to undertake certain remedial design activities. In 1997
12
<PAGE>
the EPA filed a lawsuit against the Company and Allied seeking to recover $2.7
million for past costs expended by the EPA in connection with activities at the
Sidney Center landfill site and seeking to affix liability upon the Company and
Allied for all additional costs to be incurred in connection with all further
investigations, design and cleanup activities at the site. The Company has
successfully joined four local municipalities as co-defendants in the lawsuit.
The Company and Allied intend to continue to vigorously defend the lawsuit
although remedial design work for the Sidney Center landfill site has continued
pursuant to the 1996 unilateral order. The Company also is engaged in
remediating or monitoring environmental conditions at several of its other
manufacturing facilities and has been named as a potentially responsible party
for cleanup costs at several other off-site disposal sites. During 1997, the
Company spent approximately $.5 million net of indemnification payments received
from Allied in connection with investigating, remediating and monitoring
environmental conditions at these facilities and sites. Amphenol expects such
expenditures, net of indemnification payments expected from Allied, to be less
than $.5 million in 1998.
Since 1987, the Company has not been identified nor has it been named as a
potentially responsible party with respect to any other significant on-site or
off-site hazardous waste matters. In addition, the Company believes that all of
its manufacturing activities and disposal practices since 1987 have been in
material compliance with all applicable environmental laws and regulations.
Nonetheless, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Although the Company is unable to predict with any reasonable certainty
the extent of its ultimate liability with respect to any pending or future
environmental matters, the Company believes, based upon all information
currently known by management about the Company's manufacturing activities,
disposal practices and estimates of liability with respect to all known
environmental matters, that any such liability will not be material to its
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security-Holders
A Special Meeting in lieu of the 1997 Annual Meeting of the Stockholders
of the Company was held on May 14, 1997 to (i) vote upon a proposal to approve
and adopt the Agreement and Plan of Merger, dated as of January 23, 1997 and as
amended as of April 9, 1997 between the Company and NXS Acquisition Corp. (the
"Merger Agreement") ("Proposal 1"); (ii) elect two directors to serve either
until their terms expire at the 2000 Annual Meeting of Stockholders of the
Company or until their successors shall have been elected or appointed (as the
case may be) and qualified; provided, that if the Merger Agreement was approved
and adopted by the stockholders of the Company, the directors of the Company
immediately after the effective time of the closing of the Merger Agreement
would be Martin H. Loeffler and the then current directors of NXS Acquisition
Corp. ("Proposal 2"); and (iii) ratify the selection of Price Waterhouse LLP as
independent auditors of the Company ("Proposal 3"). Proposal 1 was approved by
the stockholders of the Company by a vote of 34,749,400 FOR to 319,360 AGAINST,
with 164,335 ABSTENTIONS. As a result of the approval of Proposal 1 Martin H.
Loeffler, Henry R. Kravis, George R. Roberts, Michael W. Michelson, Marc S.
Lipschultz and Andrew Clarkson became directors of the Company effective with
the closing of the Merger. Proposal 3, the ratification of the selection of
Price Waterhouse LLP as independent auditors of the Company, was approved by the
stockholders of the Company by a vote of 38,265,947 FOR to 26,889 AGAINST, with
177,060 ABSTENTIONS. Subsequent to this special meeting a current report on Form
8-K dated June 20, 1997 was filed with the Securities and Exchange Commission on
June 20, 1997, reporting information under Items 4 and 7 thereof that Deloitte
and Touche LLP had been appointed as the Registrant's certified public
accountants replacing Price Waterhouse LLP effective June 13, 1997.
Item 4.1 Executive Officers
The following table sets forth the name, age and position with the Company
of each person who was an executive officer of Amphenol as of December 31, 1997.
Officers are elected to serve at the discretion of the Board of Directors in
accordance with the By-Laws of the Company. The By-Laws of the Company provide
that
13
<PAGE>
the Board of Directors shall elect the officers of the Company at its first
meeting held after the Annual Meeting of Stockholders of the Company. All
officers of the Company are elected to hold office until their successors are
chosen and qualified, or until their earlier resignation or removal.
Name Age Position
---- --- --------
Martin H. Loeffler 53 Chairman of the Board,
Chief Executive Officer and
President
Edward G. Jepsen 54 Executive Vice President
and Chief Financial Officer
Timothy F. Cohane 45 Senior Vice President
Edward C. Wetmore 41 Secretary and General Counsel
Diana G. Reardon 38 Controller and Treasurer
Martin H. Loeffler has been a Director of Amphenol since December 1987 and
Chairman of the Board since May 1997. He has also served as President and Chief
Operating Officer of Amphenol since July 1987. He has been President and Chief
Executive Officer of the Company since May 1996.
Edward G. Jepsen has been Executive Vice President and Chief Financial
Officer of Amphenol since May 1989 and Senior Vice President and Director of
Finance since November 1988. He was also a Director of Amphenol from January
1991 to May 1997.
Timothy F. Cohane has been a Vice President of Amphenol since December
1991. He was also a Director of Amphenol from June 1987 to May 1997. He has been
President and Chief Operating Officer of the Company's Times Fiber subsidiary
since 1994.
Edward C. Wetmore has been Secretary and General Counsel of Amphenol since
1987.
Diana G. Reardon has been Treasurer of Amphenol since March 1992 and
Controller since July 1994. Prior to that she served as Assistant Controller of
the Company.
See accompanying notes to consolidated financial statements.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company effected the initial public offering of its Class A Common
Stock in November 1991. The Company's Common Stock has been listed on the New
York Stock Exchange since that time under the symbol "APH." The following table
sets forth on a per share basis the high and low sales prices for the Common
Stock for both 1997 and 1996 as reported on the New York Stock Exchange.
1997 1996
------------ -------------
High Low High Low
---- --- ---- ---
First Quarter 26 21 3/4 26 20 1/8
Second Quarter 38 7/8 24 1/8 27 5/8 19 7/8
Third Quarter 43 1/2 39 1/16 22 7/8 18 3/4
Fourth Quarter 56 44 23 19
14
<PAGE>
As of February 27, 1998 there were 47 holders of record of the Company's
Common Stock. A significant number of outstanding shares of Common Stock are
registered in the name of only one holder, which is a nominee of The Depository
Trust Company, a securities depository for banks and brokerage firms. The
Company believes that there are a significant number of beneficial owners of its
Common Stock.
Since its initial public offering in 1991, the Company has not paid any
cash dividends on its Common Stock and it does not have any present intention to
commence payment of any cash dividends. The Company intends to retain earnings
to provide funds for the operation and expansion of the Company's business and
to repay outstanding indebtedness.
The Company's debt agreements contain covenants restricting the payment of
dividends on, or repurchases of, the Company's Common Stock. The Company's Bank
Agreement, which contains the most restrictive provision, in effect permits the
declaration and payment of cash dividends on, or repurchase of, Common Stock
only if, immediately after giving effect to any such proposed action, the
accumulated amount of all dividends and repurchases since May 1997 does not
exceed 50% of the Company's cumulative consolidated net income (as defined)
since May 1997, and the Company has met the required leverage ratio. As of
December 31, 1997, there was no amount available under this provision for future
dividends. In addition, the Bank Agreement provides that the Company may
repurchase Common Stock with the proceeds received from substantially concurrent
equity contributions or issuances of new shares of Common Stock.
Item 6. Selected Financial Data
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net sales $ 884,348 $ 776,221 $ 783,233 $ 692,651 $ 603,967
Incom before
extraordinary item 51,264 67,578 62,858 42,400 24,749
Extraordinary loss (24,547) (4,087)
Net income 26,717 67,578 62,858 38,313 24,749
Income per share before
extraordinary item 1.84 1.45 1.33 .91 .58
Extraordinary loss per share (.88) (.09)
Net income per share .96 1.45 1.33 .82 .58
Financial Position
Working capital $ 137,526 $ 136,864 $ 121,313 $ 95,590 $ 90,463
Total assets 737,154 710,662 689,924 677,055 691,277
Current portion of long-term debt 212 7,759 2,670 13,925 27,265
Long-term debt 937,277 219,484 195,195 234,251 364,574
Shareholders' equity (deficit) (343,125) 360,548 344,085 278,640 173,292
Weighted average shares
outstanding 27,806,260 46,649,541 47,304,180 46,611,759 42,821,091
</TABLE>
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the results of operations for the
three fiscal years ended December 31, 1997 has been derived from and should be
read in conjunction with the consolidated financial statements contained herein.
Results of Operations
The following table sets forth the components of net income before
extraordinary item as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
RULES...
Year Ended December 31,
- -----------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, excluding depreciation and amortization 64.7 63.7 64.7
Depreciation and amortization expense 3.6 3.7 3.5
Selling, general and administrative expense 14.1 14.8 14.6
----- ----- -----
Operating income 17.6 17.8 17.2
Interest expense (7.3) (3.2) (3.3)
Other expenses, net (.1) (.5) (.6)
Non-recurring expenses relating to Merger and Recapitalization (.3)
----- ----- -----
Income before income taxes and extraordinary item 9.9 14.1 13.3
Provision for income taxes (4.1) (5.4) (5.3)
----- ----- -----
Net income before extraordinary item 5.8% 8.7% 8.0%
===== ===== =====
</TABLE>
1997 Compared to 1996
Net sales were $884.3 million for the year ended December 31, 1997
compared to $776.2 million for 1996. Sales of commercial, radio frequency and
industrial interconnect products, cable assemblies and flat-ribbon cable for
1997 increased 16% compared to 1996 ($451.5 million - 1997; $388.9 million -
1996). Such increase is primarily due to increased sales of interconnect
products and cable assemblies for wireless communications, data applications and
smart card acceptor devices, including electronic purse applications and product
line acquisitions. Sales of high performance environmental connectors for 1997
increased 18% compared to 1996 ($246.0 million - 1997; $208.1 million - 1996).
The increase is primarily attributable to strong demand for the Company's
application- specific products for new and enhanced electronic aerospace and
avionics interconnect systems for space, military and commercial aviation
applications. Sales of coaxial cable products primarily for cable television
applications for 1997 increased 4% ($186.8 million - 1997; $179.2 million -
1996) primarily due to a 14% increase in international coaxial cable television
sales primarily related to South America and Asia, partially offset by a 3%
decline in U.S. coaxial cable sales as a result of soft demand and competitive
pricing pressures.
Geographically, sales in the United States in 1997 increased 16% compared
to 1996 ($462.3 million - 1997; $397.0 million - 1996); international sales for
1997, including export sales, increased 11% in U.S. dollars ($422.0 million -
1997; $379.2 million - 1996) and increased approximately 18% in local currencies
compared to 1996. The comparatively stronger U.S. dollar in 1997 had the
currency translation effect of decreasing net sales by approximately $24.6
million when compared to foreign currency translation rates in 1996.
The gross profit margin as a percentage of net sales (including
depreciation in cost of sales) decreased to 33% in 1997 from 34% in 1996. The
decrease is generally attributable to sales price reductions on the Company's
coaxial cable products partially offset by increased sales of higher margin
application-specific connector products, increased efficiencies due to increased
production rates for certain connector products and continuing cost control
programs.
Selling, general and administrative expenses as a percentage of sales
declined to approximately 14% in 1997 compared to approximately 15% in 1996
primarily as a result of higher sales volume in the 1997 period.
Interest expense was $64.7 million for 1997 compared to $24.6 million for
1996. The increase is due to increased debt levels resulting from the Merger and
Recapitalization in May 1997 (Note 2).
Other expenses, net for 1997 was $1.1 million, a decrease of $2.6 million
from 1996. See Note 9 to the Company's Consolidated Financial Statements for
details of the components of other expenses, net.
The provision for income taxes for 1997 was at an effective rate of 41.2%
compared to an effective rate of 38.4% in 1996. The increase is generally
attributable to non-deductible expenses (goodwill amortization) being a higher
percentage of pre-tax income.
1996 Compared to 1995
Net sales were $776.2 million for the year ended December 31, 1996
compared to $783.2 million for 1995. Sales of commercial, radio frequency and
industrial interconnect products, cable assemblies and flat-ribbon cable for
1996 increased 4.9% compared to 1995 ($388.9 million - 1996; $370.6 million -
1995). Such increase is primarily due to increased sales of cable
16
<PAGE>
assembly and interconnect products including fiber optics, smart card reader
devices, automotive safety devices (airbags and pretensioner seatbealts) and
communications related interconnect products. Sales of high performance
environmental connectors for 1996 increased 19.4% compared to 1995 ($208.1
million - 1996; $174.3 million - 1995). The increase is primarily attributable
to strong demand for the Company's application- specific products for new and
enhanced electronic aerospace and avionics interconnect systems for space,
military and commercial aviation applications. Sales of coaxial cable products
primarily for cable television applications for 1996 declined 24.8% ($179.2
million - 1996; $238.3 million - 1995) primarily due to: (1) a decline in U.S.
coaxial cable television sales which declined from $115.4 million in 1995 to
$94.5 million in 1996, of which $18.4 million of the decline is attributable to
diminished sales of coaxial cable to regional Bell operating companies ("RBOCs")
that slowed their construction of broadband systems in 1996, and reduced sales
to a major U.S. cable operator in the latter part of 1996 as that operator
reduced expenditures for the rebuilding of its systems; and (2) a decline in
international coaxial cable television sales which declined from $122.9 million
in 1995 to $84.7 million in 1996, of which $29.1 million of the decline is
attributable to reduced sales to a foreign cable operator as that operator
selected local sourcing for its cable requirements, and reduced sales to
companies in a foreign country as that country is undergoing a regulation of
cable television franchises which slowed the construction of new systems.
Geographically, sales in the United States in 1996 increased 0.6% compared
to 1995 ($397.0 million - 1996; $394.6 million - 1995); international sales for
1996, including export sales, declined 2.4% in U. S. dollars ($379.2 million -
1996; $388.7 million - 1995) and increased approximately .5% in local currencies
compared to 1995. The comparatively stronger U.S. dollar in 1996 had the
currency translation effect of decreasing net sales by approximately $11.4
million when compared to foreign currency translation rates in 1995.
Changes in net sales for 1996 compared to 1995 are primarily due to
changes in unit volume and product mix as opposed to changes in unit prices.
The gross profit margin as a percentage of net sales (including
depreciation in cost of sales) increased to 34% in 1996 from 33% in 1995. The
increase is generally attributable to increased sales of higher margin
application-specific connector products, increased efficiencies due to increased
production rates for certain connector products and continuing cost control
programs, the effect of which was partially offset by lower coaxial cable sales.
Selling, general and administrative expenses as a percentage of sales for
1996 remained constant at approximately 15% when compared to 1995.
Interest expense was $24.6 million for 1996 compared to $25.5 million for
1995. The decrease is due to generally lower average debt outstanding during the
year.
Other expenses, net for 1996 was $3.7 million, a decrease of $.8 million
from 1995. See Note 9 to the Company's Consolidated Financial Statements for
details of the components of other expenses, net.
The provision for income taxes for 1996 was at an effective rate of 38.4%
compared to an effective rate of 40% in 1995.
Liquidity and Capital Resources
Cash provided by operating activities totaled $86.3 million, $68.2 million
and $79.2 million for 1997, 1996, 1995 respectively. In 1997 cash from operating
activities of $86.3 million, proceeds from the sale of marketable securities of
$7.4 million and the sale of receivables of $10 million, and net funds available
from the Merger and Recapitalization (Note 2) of $17.9 million were used to fund
debt reduction of $85.5 (of which $65 million represents a prepayment of term
loan borrowings under the Company's Bank Agreement). The decrease in cash from
operating activities in 1996 compared to 1995 is primarily attributable to
increased cash tax payments in certain foreign jurisdictions, increased cash
payments to the Company's pension plans and increases in inventory.
Cash from operating activities was also used for capital expenditures
($24.1 million, $20.4 million and $20.4 million in 1997, 1996 and 1995
respectively), acquisitions ($4.0 million - 1997; $29.5 million - 1996) and to
repurchase in the open market the Company's common stock ($52.7 million - 1996).
In 1995 the Company also used the cash flow from operations for debt reduction
($50.4 million - 1995).
In conjunction with the Merger and Recapitalization (Note 2), the Company
entered into a $900 million Bank Agreement with a syndicate of financial
institutions, comprised of a $150 million revolving credit facility that expires
in the year 2004 and a $750 million term loan facility - $350 million (Tranche
A) maturing over a 7 year period ending 2004, $200 million (Tranche B) maturing
in 2005 and $200 million (Tranche C) maturing in 2006. In October 1997, the
Company negotiated an amendment to the term loan under the Bank Agreement. The
amendment extinguished the Tranche B and C indebtedness with borrowings under a
new $375 million Term Loan Tranche B. The new Term Loan Tranche B has required
amortization in 2005 and 2006. At December 31, 1997, the Company had prepaid $65
million of the term loan. The credit agreement requires the maintenance of
certain interest coverage and leverage ratios, and includes limitations with
respect to, among other things, indebtedness, and restricted payments, including
dividends on the Company's common stock. At December 31, 1997 there were $685
million of borrowings outstanding under the term loan facility and there were no
amounts outstanding under the revolving credit facility.
In July 1997, the Company entered into interest rate protection agreements
that effectively fix the Company's interest cost on $450 million of borrowings
under the Bank Agreement to the extent that LIBOR interest rates remain below 7%
for $300 million of borrowings and below 8% for $150 million of borrowings.
The Company's EBITDA as defined in the Bank Agreement was $188.5 million
and $168.2 million for 1997 and 1996, respectively. EBITDA is not a defined term
under Generally Accepted Accounting Principles (GAAP) and is not an alternative
to operating income or cash flow from operations as determined under GAAP. The
Company believes that EBITDA provides additional information for determining its
ability to meet future debt service requirements; however, EBITDA does not
reflect cash available to fund cash requirements.
The Company's primary ongoing cash requirements will be for debt service,
capital expenditures and product development activities. The Company's debt
service requirements consist primarily of principal
17
<PAGE>
and interest on bank borrowings and interest on Senior Subordinated Notes due
2007. The Company has not paid, and does not have any present intention to
commence payment of, cash dividends on its Common Stock. The Company expects
that ongoing requirements for debt service, capital expenditures and product
development activities will be funded by internally-generated cash flow and
availability under the Company's revolving credit facility. The Company expects
that capital expenditures in 1998 will not exceed $35.0 million. The Company's
required debt amortization in 1998 is $.2 million; the Company's required cash
interest payments for 1998, at current interest rates, are estimated at
approximately $76.0 million.
Environmental Matters
Subsequent to the acquisition of Amphenol Corporation in 1987, Amphenol
and Allied have been named jointly and severally liable as potentially
responsible parties in relation to several environmental cleanup sites. Amphenol
and Allied have jointly consented to perform certain investigations and remedial
and monitoring activities at two sites and they have been jointly ordered to
perform work at another site. The responsibility for costs incurred relating to
these sites is apportioned between Amphenol and Allied based on an agreement
entered into in connection with the acquisition. For sites covered by this
agreement, to the extent that conditions or circumstances occurred or existed at
the time of or prior to the acquisition, the first $13.0 million of costs are
borne by Amphenol and were incurred as of December 31, 1996. Allied is obligated
to pay 80% of the excess over $13.0 million and 100% of the excess over $30.0
million. Management does not believe that the costs associated with resolution
of these or any other environmental matters will have a material adverse effect
on the Company's financial condition or results of operations.
Inflation and Costs
The cost of the Company's products is influenced by the cost of a wide
variety of raw materials, including precious metals such as gold and silver used
in plating; aluminum, copper, brass and steel used for contacts, shells and
cable; and plastic materials used in molding connector bodies, inserts and
cable. In general, increases in the cost of raw materials, labor and services
have been offset by price increases, productivity improvements and cost saving
programs.
Risk Management
The Company has to a significant degree mitigated its exposure to currency
risk in its business operations by manufacturing and procuring its products in
the same country or region in which the products are sold so that costs reflect
local economic conditions. In other cases involving U.S. export sales, raw
materials are a significant component of product costs for the majority of such
sales and raw material costs are generally dollar based on a worldwide scale,
such as basic metals and petroleum derived materials.
Future Accounting Changes
In June 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (FAS 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." The Company
adopted the Statement effective January 1, 1997. Adoption of the Statement had
no effect on the Company's financial condition or results of operations.
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 (FAS 128), "Earnings per Share." The
statement established new standards for computing and disclosure of earnings per
share ("EPS") and requires restatement of prior years EPS information. The
statement requires dual presentation of "basic" EPS and "diluted" EPS. Basic EPS
is based on the weighted average number of common shares outstanding, excluding
common stock equivalents. Diluted EPS reflects the potential dilution of EPS
that could occur if securities or other contracts to issue common shares were
exercised. The Company has adopted the Statement and the appropriate disclosure
is reflected in the accompanying Consolidated Statement of Income.
In June 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive
Income" which requires a statement of comprehensive income to be included in the
financial statements for fiscal years beginning after December 15, 1997. The
Company will include such statement beginning with the first quarter of 1998.
In addition, in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 (FAS 131), "Disclosures
About Segments of an Enterprise and Related Information" which requires
disclosure of certain information about operating segments and about products
and services, the geographic areas in which a company operates and their major
customers. The Company is in the process of evaluating the effect this new
standard will have on disclosures in the Company's financial statements. Any
resulting change in disclosure will be reflected in the year ended December 31,
1998 financial statements.
Information Systems and the Year 2000
As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000 issue. The
Company is currently engaged in a comprehensive project to upgrade its computer
facilities such that they will consistently and properly recognize the Year
2000. Many of the Company's systems include new hardware and packaged software
recently purchased from large vendors who have represented that these systems
are already Year 2000 compliant. The Company is in the process of obtaining
assurances from vendors that timely updates will be made available to make all
remaining purchased software Year 2000 compliant.
The Company will utilize both internal and external resources to reprogram
or replace and test all of its software for Year 2000 compliance, and the
Company expects to complete the project in early 1999. The estimated cost for
this project could range as high as $3.0 million, including the cost of new
systems some of which will be capitalized. This cost is being funded through
operating cash flows. Failure by the Company and/or vendors and customers to
complete Year 2000 compliance work in a timely manner could have a material
adverse effect on certain of the Company's operations.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Management
Management is responsible for the integrity and objectivity of the
financial statements and other information appearing in this annual report on
Form 10-K. The financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts based on
management's best estimates and judgments, with due consideration given to
materiality. The Company maintains a system of internal accounting controls and
procedures intended to provide reasonable assurance that assets are safeguarded
and transactions are properly recorded and accounted for in accordance with
management's authorization.
Deloitte & Touche LLP has been engaged to audit the financial statements
in accordance with generally accepted auditing standards. They obtain an
understanding of the Company's accounting policies and controls, and conduct
such tests and related procedures as they consider necessary to arrive at their
opinion. The Board of Directors has appointed an Audit Committee composed of
outside directors. The Audit Committee meets periodically with representatives
of management and Deloitte & Touche LLP to discuss and review their activities
with respect to internal accounting controls and financial reporting and
auditing.
Independent Auditors' Report
To the Board of Directors and
Shareholders of Amphenol Corporation
We have audited the accompanying consolidated balance sheet of Amphenol
Corporation and subsidiaries as of December 31, 1997, and the related
consolidated statements of income, changes in shareholders' equity (deficit),
and cash flow for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Amphenol Corporation and its
subsidiaries at December 31, 1997, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Stamford, Connecticut
January 14, 1998
Report of Independent Accountants
To the Board of Directors and
Shareholders of Amphenol Corporation
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, changes in shareholders' equity,
retained earnings and of cash flow present fairly, in all material respects, the
financial position of Amphenol Corporation and its subsidiaries at December 31,
1996, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Hartford, Connecticut
January 14, 1997, except as to the restatement of net income per common share
for the two years ended December 31, 1996 as described in Note 1 under the
caption "Net Income per Share," which is as of March 25, 1998.
19
<PAGE>
Consolidated Statement of Income
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 884,348 $ 776,221 $ 783,233
Costs and expenses:
Cost of sales, excluding depreciation and amortization 572,092 494,689 506,707
Depreciation and amortization expense 20,428 17,846 16,933
Selling, general and administrative expense 125,064 114,746 114,041
Amortization of goodwill 11,316 10,962 10,862
------------ ------------ ------------
Operating income 155,448 137,978 134,690
Interest expense (64,713) (24,617) (25,548)
Expenses relating to Merger and Recapitalization (Note 2) (2,500)
Other expenses, net (1,061) (3,696) (4,515)
------------ ------------ ------------
Income before income taxes and extraordinary item 87,174 109,665 104,627
Provision for income taxes (35,910) (42,087) (41,769)
------------ ------------ ------------
Income before extraordinary item 51,264 67,578 62,858
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes of $14,728 (Notes 2 and 3) (24,547)
------------ ------------ ------------
Net income $ 26,717 $ 67,578 $ 62,858
============ ============ ============
Net income per common share:
Income before extraordinary item $ 1.84 $ 1.45 $ 1.33
Extraordinary loss (.88)
------------ ------------ ------------
Net income $ .96 $ 1.45 $ 1.33
============ ============ ============
Average common shares outstanding 27,806,260 46,649,541 47,304,180
Net income per common share - assuming dilution:
Income before extraordinary item $ 1.83 $ 1.45 $ 1.33
Extraordinary loss (.88)
------------ ------------ ------------
Net income $ .95 $ 1.45 $ 1.33
============ ============ ============
Average common shares outstanding assuming dilution 28,002,977 46,720,900 47,412,015
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
Consolidated Balance Sheet
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and short-term cash investments $ 4,713 $ 3,984
Accounts receivable, less allowance for
doubtful accounts of $1,633 and $1,868 70,037 64,904
Inventories:
Raw materials and supplies 21,115 21,648
Work in process 96,833 92,771
Finished goods 49,062 38,864
--------- ---------
167,010 153,283
Prepaid expenses and other assets 13,020 11,611
--------- ---------
Total current assets 254,780 233,782
--------- ---------
Land and depreciable assets:
Land 10,702 11,090
Buildings 64,149 65,379
Machinery and equipment 206,525 188,716
--------- ---------
281,376 265,185
Less accumulated depreciation (169,784) (163,110)
--------- ---------
111,592 102,075
Deferred debt issuance costs 19,377 3,717
Excess of cost over fair value of net assets acquired 339,223 346,583
Other assets 12,182 24,505
--------- ---------
$ 737,154 $ 710,662
========= =========
Liabilities & Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 64,255 $ 49,484
Accrued interest 11,442 2,481
Accrued salaries, wages and employee benefits 14,229 12,671
Other accrued expenses 27,116 24,523
Current portion of long-term debt 212 7,759
--------- ---------
Total current liabilities 117,254 96,918
--------- ---------
Long-term debt 937,277 219,484
Deferred taxes and other liabilities 25,748 33,712
Commitments and contingent liabilities (Notes 3, 7 and 10)
Shareholders' Equity (Deficit):
Class A Common Stock, $.001 par value; 40,000,000 and 96,250,000 shares
authorized; 17,532,804 and 44,720,287 shares outstanding at
December 31, 1997 and 1996, respectively 20 47
Additional paid-in capital (deficit) (511,584) 265,425
Accumulated earnings 178,351 151,634
Cumulative valuation adjustments (Note 6) (9,912) (3,887)
Treasury stock, at cost, 2,625,100 shares at December 31, 1996 (52,671)
--------- ---------
Total shareholders' equity (deficit) (343,125) 360,548
--------- ---------
$ 737,154 $ 710,662
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Additional Cumulative Total
Paid-In Valuation Treasury Shareholders'
Common Capital Accumulated Adjustments Stock Equity
Stock (Deficit) Earnings (Note 6) at Cost (Deficit)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 47 $ 264,821 $ 21,198 $ (7,426) $ 278,640
Net income 62,858 62,858
Translation adjustments 2,246 2,246
Amortization of deferred compensation 384 384
Stock options exercised and vesting of
restricted stock, net of tax (12) (12)
Decline in market value of marketable
securities available for sale, net of tax (1,194) (1,194)
Minimum pension liability adjustment,
net of tax 1,163 1,163
-------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1995 47 265,193 84,056 (5,211) 344,085
Net income 67,578 67,578
Translation adjustments 647 647
Purchase of Treasury Stock $ (52,671) (52,671)
Amortization of deferred compensation 65 65
Stock options exercised 167 167
Decline in market value of marketable
securities available for sale, net of tax (1,085) (1,085)
Minimum pension liability adjustment,
net of tax 1,762 1,762
-------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 47 265,425 151,634 (3,887) (52,671) 360,548
Net income 26,717 26,717
Translation adjustments (8,147) (8,147)
Stock subscription proceeds 532 532
Sale of 13,116,955 shares of Common
Stock (Note 2) 13 341,028 341,041
Purchase of 40,325,240 shares of
Common Stock (Note 2) (40) (1,048,450) (1,048,490)
Fees and other expenses related to
the Merger and Recapitalization (Note 2) (17,644) (17,644)
Retirement of Treasury Stock (52,671) 52,671
Amortization of deferred compensation 186 186
Stock options exercised 10 10
Decline in market value of marketable
securities available for sale, net of tax (1,140) (1,140)
Sale of marketable securities (2,547) (2,547)
Minimum pension liability adjustment,
net of tax 5,809 5,809
-------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 $ 20 $ (511,584) $ 178,351 $ (9,912) $ -- $ (343,125)
======== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
Consolidated Statement of Cash Flow
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 26,717 $ 67,578 $ 62,858
Adjustments for cash from operations:
Depreciation and amortization 31,744 28,808 27,795
Amortization of deferred debt issuance costs 2,638 691 652
Net extraordinary charge for write off of
deferred debt issuance costs 24,547
Non-recurring expenses relating to the Merger and
Recapitalization 2,500
Gain on sale of marketable securities (3,917)
Net change in:
Accounts receivable (18,261) 7,315 (6,954)
Inventory (17,700) (10,801) (1,790)
Prepaid expenses and other assets (2,479) 604 90
Accounts payable 15,653 (3,411) 4,121
Accrued liabilities 18,938 (13,644) 933
Accrued interest 8,944 (188) (102)
Accrued pension and post employment benefits (4,717) (7,590) (2,483)
Deferred taxes and other liabilities 2,607 (970) (5,443)
Other (952) (185) (450)
----------- ----------- -----------
Cash flow provided by operations 86,262 68,207 79,227
----------- ----------- -----------
Cash flow from investing activities:
Additions to property, plant and equipment (24,059) (20,374) (20,381)
Net investment in acquisitions and joint ventures (4,000) (29,461)
Proceeds from the sale of marketable securities 7,351
Other (1,030)
----------- ----------- -----------
Cash flow used by investing activities (20,708) (49,835) (21,411)
----------- ----------- -----------
Cash flow from financing activities:
Decrease in long-term debt (45,368)
Net change in borrowings under revolving credit facilities (20,461) 26,255 (5,002)
Repurchase of senior notes and subordinated debt (212,479)
Payment of fees and other expenses related to
Merger and Recapitalization (59,436)
Borrowings under New Credit Facility 750,000
Net change in receivables sold 10,000
Decrease in borrowings under New Credit Facility (65,000)
Proceeds from the issuance of senior subordinated notes 240,000
Purchase of Amphenol Common Stock (1,048,490)
Sale of common stock related to Merger 341,041
Treasury stock repurchases (52,671)
----------- ----------- -----------
Cash flow used by financing activities (64,825) (26,416) (50,370)
----------- ----------- -----------
Net change in cash and short-term cash investments 729 (8,044) 7,446
Cash and short-term cash investments balance, beginning of period 3,984 12,028 4,582
----------- ----------- -----------
Cash and short-term cash investments balance, end of period $ 4,713 $ 3,984 $ 12,028
=========== =========== ===========
Cash paid during the year for:
Interest $ 53,237 $ 24,180 $ 25,109
Income taxes paid, net of refunds 20,623 54,765 37,606
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Note 1 - Summary of Significant Accounting Policies
Operations
Amphenol Corporation ("Amphenol" or the "Company") is in one business
segment which consists of designing, manufacturing and marketing connectors,
cable and interconnect systems, principally for telephone, wireless and data
communication systems; cable television; commercial and military aerospace
electronics equipment; automotive and mass transportation applications; and
industrial factory automation equipment.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation and Investments
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Other assets at December 31, 1996, includes an investment
in equity securities deemed available-for-sale and is recorded at its market
value at that date of $8,187, and the cumulative appreciation in market value
over the cost basis of the investment, net of deferred tax, of $3,687 is
recorded as a component of shareholders' equity (deficit). Such investment was
sold in 1997 and the gain is reported in Other Expenses, net (Note 9).
Cash and Short-Term Cash Investments
Cash and short-term cash investments consist of cash and liquid
investments with a maturity of less than three months.
Inventories
Inventories are stated at the lower of standard cost, which approximates
average cost, or market. The principal components of cost included in
inventories are materials, direct labor and manufacturing overhead.
Depreciable Assets
Property, plant and equipment are carried at cost. Depreciation and
amortization of property, plant and equipment are provided on a straight-line
basis over the respective asset lives determined on a composite basis by asset
group or on a specific item basis using the estimated useful lives of such
assets which range from 3 to 12 years for machinery and equipment and 20 to 40
years for buildings. It is the Company's policy to periodically review fixed
asset lives.
Deferred Debt Issuance Costs
Deferred debt issuance costs are being amortized on the interest method
over the term of the related debt and such amortization is included in interest
expense.
Excess of Cost over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired (goodwill)
is being amortized on the straight-line basis over a period of 40 years.
Accumulated amortization was $96,973 and $85,657 at December 31, 1997 and 1996,
respectively. Management continually reassesses the appropriateness of both the
carrying value and remaining life of goodwill. Such reassessments are based on
forecasting cash flows, on an undiscounted basis, and other factors. In the
event an impairment is indicated, the amount of the impairment would be based on
estimated discounted cash flows.
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of products.
Sales and related cost of sales under long-term contracts with commercial
customers and the U.S. Government are recognized as units are delivered or
services provided.
Retirement Pension Plans
Costs for retirement pension plans include current service costs and
amortization of prior service costs over periods of up to thirty years. It is
the Company's policy to fund current pension costs in conformance with minimum
funding requirements and maximum tax deductible limitations. The expense of
retiree medical benefit programs is recognized
24
<PAGE>
during the employees' service with the Company as well as amortization of a
transition obligation recognized on adoption of the accounting principle in
1993.
Income Taxes
Deferred income taxes are provided for revenue and expenses which are
recognized in different periods for income tax and financial statement purposes.
Deferred income taxes are not provided on undistributed earnings of foreign
affiliated companies which are considered to be permanently invested.
Research and Development
Research, development and engineering expenditures for the creation and
application of new and improved products and processes were $15,313, $14,550 and
$15,740, excluding customer sponsored programs representing expenditures of
$214, $927 and $1,272, for the years 1997, 1996 and 1995, respectively.
Environmental Obligations
The Company recognizes the potential cost for environmental remediation
activities when assessments are made, remedial efforts are probable and related
amounts can be reasonably estimated; potential insurance reimbursements are not
recorded. The Company regularly assesses its environmental liabilities through
reviews of contractual commitments, site assessments, feasibility studies and
formal remedial design and action plans.
Net Income per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128 "Earnings Per Share" during 1997. Net income per share is based on the net
income for the period divided by the weighted average common shares outstanding.
Net income per share assuming dilution assumes the exercise of outstanding,
dilutive stock options using the treasury stock method. The comparative earnings
per share data for the prior years presented have been restated.
Derivative Financial Instruments
Derivative financial instruments, which are periodically used by the
Company in the management of its interest rate and foreign currency exposures,
are accounted for on an accrual basis. Income and expense are recorded in the
same category as that arising from the related asset or liability. For example,
amounts to be paid or received under interest rate swap agreements are
recognized as interest income or expense in the periods in which they accrue.
Note 2 - Merger and Recapitalization
On May 19, 1997, the Company merged with NXS Acquisition Corp., a wholly
owned subsidiary of KKR 1996 Fund L.P., KKR Partners II, L.P., and NXS
Associates, L.P., limited partnerships formed at the direction of Kohlberg
Kravis Roberts & Co. L.P. ("KKR"). The Merger had the effect of affiliates of
KKR investing $341,041 in exchange for 13,116,955 shares, or 75% of the
Company's common stock. Such equity proceeds , along with $240,000 of proceeds
from the sale of 9 7/8% Senior Subordinated Notes due 2007 and borrowings of
$750,000 under a $900,000 bank loan agreement ("Bank Agreement") were used to
repurchase 40,325,240 shares of the Company's common stock for $1,048,490,
purchase all of the Company's outstanding 10.45% Senior Notes and substantially
all of the Company's 12 3/4% Subordinated Debentures for $211,153 and pay fees
and expenses of $59,436, including $18,000 paid to KKR and $39,292 relating to
the issuance of new debt.
The Merger and related transactions have been recorded as a
Recapitalization ("Merger and Recapitalization"). Expenses of $17,644 related to
the repurchase of the Company's common stock have been reflected as a reduction
of additional paid-in capital; other expenses of approximately $2,500, primarily
relating to the buyout of certain stock options, are reflected in the
accompanying Consolidated Statement of Income. In conjunction with the Merger
and Recapitalization, the Company recorded the costs associated with early
extinguishment of debt of $12,845, net of tax, as an extraordinary item in the
accompanying Consolidated Statement of Income. Such costs included the premium
associated with redemption of the Company's 10.45% Senior Notes and 12 3/4%
Subordinated Debentures and the write off of unamortized deferred debt issuance
costs. Supplemental earnings per share assuming the Merger and Recapitalization
was completed at the beginning of 1997 and excluding the impact of related
non-recurring expenses is $1.98.
25
<PAGE>
Note 3 - Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------
Interest Rate at
December 31, 1997 Maturity 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank Agreement:
Term loan 8.0% 1999-2006 $685,365 $
Revolving credit facility 2004 --
Senior subordinated notes 9.875% 2007 240,000
Senior notes 100,000
Senior subordinated debentures 95,000
Revolving credit facility - old 24,000
Notes payable to foreign banks 1.0%-21.0% 1998-2004 12,124 8,243
-------- --------
937,489 227,243
Less current portion 212 7,759
-------- --------
Total long-term debt $937,277 $219,484
======== ========
</TABLE>
In conjunction with the Merger and Recapitalization, the Company entered
into a $900,000 Bank Agreement with a syndicate of financial institutions,
comprised of a $150,000 revolving credit facility that expires in the year 2004
and a $750,000 term loan facility - $350,000 (Tranche A) maturing over a
seven-year period ending 2004, $200,000 (Tranche B) maturing in 2005 and
$200,000 (Tranche C) maturing in 2006. $56,000 of the term loan was borrowed by
the Company's U.K. subsidiary and is denominated in pounds sterling. In October
1997, the Company negotiated a significant amendment and restatement to the term
loan under the Bank Agreement. The amendment extinguished the Tranche B and C
indebtedness with borrowings under a new $375,000 Term Loan Tranche B with
required amortization in 2005 and 2006. In conjunction with the amendment and
restatement, the Company incurred an extraordinary loss, net of tax, of $11,702
for the write off of unamortized deferred debt issuance costs. At December 31,
1997, the Company had prepaid $65,000 of the original term loan. Availability
under the revolving credit facility at December 31, 1997 was $148,052, after
reduction of $1,948 for outstanding letters of credit.
At December 31, 1997, interest under the Bank Agreement generally accrues
at 0.5% to 1.0% over prime or 1.75% to 2.25% over LIBOR at the Company's option.
The Company also pays certain annual agency and commitment fees. At December 31,
1997 the Company had interest rate protection in the form of swap agreements
that together effectively fixed the Company's LIBOR interest rate on $450,000 of
floating rate bank debt at 5.76%. Such agreements are in effect to the extent
that LIBOR remains below 7% for $300,000 of debt and remains below 8% for an
additional $150,000 of debt. These agreements expire in July 2002.
The Bank Agreement requires that the Company satisfy certain financial
covenants including interest coverage and leverage ratio tests, and includes
limitations with respect to, among other things, (i) incurring debt, (ii)
creating or incurring liens, (iii) making other investments, (iv) acquiring or
disposing of assets (v) capital expenditures, and (vi) restricted payments,
including dividends on the Company's common stock.
26
<PAGE>
The 9 7/8% Senior Subordinated Notes due 2007 are general unsecured
obligations of the Company. The notes are subject to redemption at the option of
the Company, in whole or in part, beginning in 2002 at 104.938% and declining to
100% by 2005. In addition, at any time prior to 2000, the Company may, at its
option, redeem up to $96,000 of the notes at a redemption price of 109.875% with
the net cash proceeds of one or more equity offerings.
In conjunction with the Merger and Recapitalization, an existing unsecured
revolving credit agreement with a group of banks was terminated, and the
existing Senior Notes and the Senior Subordinated Debentures were redeemed.
The maturity of the Company's long-term debt over each of the next five
years ending December 31, is as follows: 1998-$212; 1999-$4,748; 2000-$19,044;
2001-$48,027; 2002-$60,530.
Note 4 - Income Taxes
The components of income before income taxes and extraordinary item and
the provision for income taxes are as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Income before taxes and extraordinary item:
United States $ 45,354 $ 67,889 $ 69,694
Foreign 41,820 41,776 34,933
-------- -------- --------
$ 87,174 $109,665 $104,627
======== ======== ========
Current provision:
United States $ 21,857 $ 24,174 $ 18,045
Foreign 12,611 15,993 16,144
-------- -------- --------
34,468 40,167 34,189
-------- -------- --------
Deferred provision:
United States 1,407 1,884 7,122
Foreign 35 36 458
-------- -------- --------
1,442 1,920 7,580
-------- -------- --------
Total provision for income taxes $ 35,910 $ 42,087 $ 41,769
======== ======== ========
At December 31, 1997, the Company had $21,881 of foreign tax loss
carryforwards, of which $2,074 expire at various dates through 2002 and the
balance can be carried forward indefinitely, and $348 of tax credit
carryforwards that expire in 1999. Accrued income tax liabilities of $8,251 and
$11,352 at December 31, 1997 and 1996, respectively, are included in other
accrued expenses in the Consolidated Balance Sheet.
Differences between the U.S. statutory federal tax rate and the Company's
effective income tax rate are analyzed below:
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory federal tax rate 35.0% 35.0% 35.0%
State and local taxes 1.4 1.5 1.2
Non-deductible purchase accounting differences 4.5 3.7 3.6
Foreign tax provisions (benefit) at rates different from the U.S. statutory rate (2.2) .5 4.8
Tax cost (benefit) of foreign dividend income, net of related tax credits 3.1 (2.6) (2.8)
Valuation allowance .1 (4.1) (1.8)
Other (.7) 4.4 (.1)
---- ---- ----
Effective tax rate 41.2% 38.4% 39.9%
==== ==== ====
</TABLE>
27
<PAGE>
The Company's deferred tax assets and liabilities, excluding a valuation
allowance, were comprised of the following:
December 31,
---------------------
1997 1996
------- -------
Deferred tax assets:
Accrued liabilities and reserves $ 5,583 $ 6,359
Operating loss carryforwards 7,214 4,447
Foreign tax credit carryforwards 348 380
Employee benefits 1,933 6,459
------- -------
$15,078 $17,645
======= =======
Deferred tax liabilities:
Depreciation $ 8,031 $ 9,351
Marketable securities 1,985
Prepaid pension costs 6,984 4,930
------- -------
$15,015 $16,266
======= =======
A valuation allowance of $9,731 and $8,184 at December 31, 1997 and 1996,
respectively, has been recorded which relates primarily to foreign net operating
loss carryforwards, foreign tax credits and certain deferred tax deductions for
which a tax benefit is less likely than not to be received. The net change in
the valuation allowance for deferred tax assets resulted in an increase of tax
expense of $1,547 in 1997 and a reduction of income tax expense of $4,444 in
1996. The net change in the valuation allowance during 1997 and 1996 related
primarily to the foreign net operating loss carryforwards. Changes to certain
deferred tax deductions resulted in a decrease to the valuation allowance for
1996. Current and non-current deferred tax assets and liabilities within the
same tax jurisdiction are offset for presentation in the Consolidated Balance
Sheet.
United States income taxes have not been provided on undistributed
earnings of international subsidiaries. The Company's intention is to reinvest
these earnings permanently or to repatriate the earnings only when it is tax
effective to do so. Accordingly, the Company believes that any United States tax
on repatriated earnings would be substantially offset by U.S. foreign tax
credits. The Company is subject to periodic audits of its various tax returns by
government agencies; management does not believe that amounts, if any, which may
be required to be paid by reason of such audits will have a material effect on
the Company's financial position or results of operations.
Note 5 - Benefit Plans and Other Postretirement Benefits
The Company and its domestic subsidiaries had a number of defined benefit
plans covering substantially all U.S. employees. Effective December 31, 1997,
the individual U.S. plans were merged into one plan . The information presented
below for U.S. plans for 1997 is on the basis of the merged plans. Plan benefits
are generally based on years of service and compensation. The plans are
noncontributory, except for certain salaried employees. Certain foreign
subsidiaries have defined benefit plans covering their employees. The following
is a summary of the Company's defined benefit plans' funded status as of the
most recent actuarial valuations (December 31, 1997 and 1996).
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------
Accumulated Assets Accumulated Assets
Benefits Exceed Benefits Exceed
Exceed Accumulated Exceed Accumulated
Assets Benefits Assets Benefits
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 18,315 $ 167,376 $ 72,983 $ 102,685
========= ========= ========= =========
Accumulated benefit obligation $ 18,656 $ 171,452 $ 74,319 $ 104,576
========= ========= ========= =========
Projected benefit obligation $ 20,891 $ 178,982 $ 76,959 $ 112,777
Plan assets at fair value 204,679 42,637 136,202
========= ========= ========= =========
Plan assets over (under) projected
benefit obligation (20,891) 25,697 (34,322) 23,425
Unrecognized net loss (gain) 252 (4,046) 11,625 (2,994)
Unrecognized prior service cost 6,609 4,116 1,351
Unrecognized transition (asset) liability 177 (2,867) 241 (3,350)
--------- --------- --------- ---------
Pension asset (liability) included in the
Consolidated Balance Sheet $ (20,462) $ 25,393 $ (18,340) $ 18,432
========= ========= ========= =========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net pension expense includes the following components:
Service cost benefits earned $ 3,810 $ 3,551 $ 3,221
Interest cost on projected benefit obligation 13,761 13,707 13,313
Actual return on plan assets (35,321) (16,193) (33,906)
Net amortization and deferral of actuarial losses 19,417 1,321 20,045
-------- -------- --------
Net pension expense $ 1,667 $ 2,386 $ 2,673
======== ======== ========
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining actuarial present value of the projected
benefit obligation was 7.25% (7.5% in 1996 and 1995) and 3.25% (3.50% in 1996
and 1995), respectively. The expected long-term rate of return on assets was
10.5%. Plan assets consist primarily of U.S. equity and debt securities. The
largest non-U.S. plan, in accordance with local custom, is unfunded and had an
accumulated benefit obligation of approximately $18,656 and $20,485 at December
31, 1997 and 1996 respectively. Such obligation is included in the Consolidated
Balance Sheet and the tables above. Pension plans of certain of the Company's
other international subsidiaries generally do not determine the actuarial value
of accumulated benefits and the value of net assets on the basis shown above.
The plans, in accordance with local practices, are generally unfunded. The
vested benefit obligations of these plans are not significant.
In accordance with the provisions of SFAS No. 87, the Company recorded a
minimum pension liability at December 31, 1996 of $13,572 for circumstances in
which the pension plan's accumulated benefit obligation exceeded the fair value
of the plan's assets and accrued pension liability. Such liability was partially
offset by an intangible asset equal to the unrecognized prior service cost, with
the balance recorded as a reduction in shareholders' equity, net of related
deferred tax benefits. At December 31, 1997, the fair value of plan assets
exceeded the accumulated benefit obligations. The Company maintains self
insurance programs for that portion of its health care and workers compensation
costs not covered by insurance. The Company also provides certain health care
and life insurance benefits to certain eligible retirees through postretirement
benefit programs. Beginning in late 1996, the Company implemented changes in its
postretirement medical benefit plans such that the Company's share of the cost
of such plans for most participants is fixed, and any increase in the cost of
such plans will be the responsibility of the retirees. The cost of
postretirement health care and life insurance benefit programs charged to
expense was approximately $1,823, $2,734, and $2,088 for the years 1997, 1996
and 1995, respectively. The Company expects to fund the benefit costs
principally on a pay-as-you-go basis. Since the Company has modified its
postretirement medical plans to hold constant its obligation and since the
accumulated postretirement benefit obligation ("APBO") and the net
postretirement benefit expense are not material in relation to the Company's
financial condition or results of operations, management believes any change in
medical costs from that estimated will not have a significant impact on the
Company. The discount rates used in determining the APBO at December 31, 1997
and 1996 were 7.25% and 7.5%, respectively.
29
<PAGE>
Summary information on the Company's postretirement medical plans as of December
31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 10,192 $ 10,710
Fully eligible, active plan participants 1,500 1,236
Other active participants 1,335 1,156
-------- --------
Postretirement benefit obligation 13,027 13,102
Unrecognized loss (8,507) (6,815)
Unrecognized transition obligation (931) (933)
-------- --------
Postretirement benefit liability
included in the balance sheet $ 3,589 $ 5,354
======== ========
Components of net postretirement benefit expense are as follows:
Service cost $ 65 $ 36
Interest cost 963 1,545
Amortization of transition obligation 62 424
Net amortization and deferral of actuarial losses 733 729
-------- --------
Net postretirement benefit expense $ 1,823 $ 2,734
======== ========
</TABLE>
Note 6 - Shareholders' Equity (Deficit)
The Company had a stock option plan which authorized the granting of stock
options by the Board of Directors for up to a maximum of 1,000,000 shares of
Class A Common Stock (the "Old Plan"). In conjunction with the Merger and
Recapitalization, all outstanding options under the Old Plan were cancelled and
the holders of options with an exercise price less than $26.00 per share were
paid the difference between $26.00 and the exercise price. Such amount for all
of the then outstanding options was approximately $2.2 million. In May 1997, the
Company adopted the 1997 Option Plan (the "New Plan") which authorizes the
granting of stock options by a committee of the Board of Directors for up to a
maximum of 1,200,000 shares of Common Stock. Options granted under the New Plan
vest ratably over a period of five years from the date of grant and are
exercisable over a period of ten years from the date of grant. In addition,
shares issued in conjunction with the exercise of stock options under the New
Plan are generally subject to a Management Stockholders' Agreement which, among
other things, places restrictions on the sale or transfer of such shares. At
December 31, 1997, no options granted under the New Plan were vested.
Stock option plan activity for 1995, 1996, and 1997 was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Old Plan New Plan Average Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1994 271,381 $12.36
Options granted 155,500 26.32
Options exercised (54,705) 11.40
Options cancelled (58,332) 18.56
--------
Options outstanding at December 31, 1995 313,844 18.48
Options granted 173,600 23.82
Options exercised (15,005) 11.11
Options cancelled (49,001) 21.53
--------
Options outstanding at December 31, 1996 423,438 20.58
Options granted 1,190,176 26.12
Options exercised (14,001) 13.15
Options cancelled (409,437) (11,750) 20.47
-------- ---------
Options outstanding at December 31, 1997 -- 1,178,426 $26.12
======== =========
</TABLE>
30
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ------------------------
Average Average
Exercise Price Shares Price Term Shares Price
- -------------- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C>
$25.00 - $30.00 1,168,426 $26.00 9.38 -- --
35.00 - 40.00 10,000 39.93 9.63 -- --
</TABLE>
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the stock option
plans. Accordingly, no compensation cost has been recognized for the plans. Had
compensation cost for the stock option plans been determined based on the fair
value of the option at date of grant consistent with the requirements of SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's income before
extraordinary item and net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
1997 1996 1995
---- ---- ----
Income before
extraordinary item As reported $51,264 $67,578 $62,858
Pro forma 49,704 66,884 62,366
Income per share
before extraordinary item As reported $1.84 $1.45 $1.33
Pro forma 1.79 1.43 1.32
Income per share
before extraordinary item
- assuming dilution As reported $1.83 $1.45 $1.33
Pro forma 1.78 1.43 1.32
Net income As reported $26,717 $67,578 $62,858
Pro forma 25,157 66,884 62,366
Net income per share As reported $ .96 $1.45 $1.33
Pro forma .90 1.43 1.32
Net income per share
- assuming dilution As reported $ .95 $1.45 $1.33
Pro forma .90 1.43 1.32
The fair value of each stock option has been estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
1997 1996 1995
---- ---- ----
Risk free interest rate 5.4% 6.1% 6.6%
Expected life 4 years 4 years 4 years
Expected volatility 30.0% 30.0% 30.0%
Expected dividend yield -- -- --
The weighted-average fair values of options granted during 1997, 1996 and
1995 were $8.36, $7.98 and $9.14, respectively.
31
<PAGE>
Activity in the Company's Shareholders' Equity (Deficit) cumulative
valuation adjustment accounts for 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
Cumulative
Cumulative Minimum Total
Cumulative Appreciation Pension Cumulative
Translation in Marketable Liability Valuation
Adjustment Securities Adjustment Adjustment
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance December 31, 1994 $ (4,658) $ 5,966 $(8,734) $ (7,426)
Translation adjustments 2,246 2,246
Change in appreciation in market
value of marketable securities
available-for-sale (1,194) (1,194)
Change in minimum pension
liability adjustment 1,163 1,163
-------- ------- ------- -------
Balance December 31, 1995 (2,412) 4,772 (7,571) (5,211)
Translation adjustments 647 647
Change in appreciation in market
value of marketable securities
available-for-sale (1,085) (1,085)
Change in minimum pension
liability adjustment 1,762 1,762
-------- ------- ------- -------
Balance December 31, 1996 (1,765) 3,687 (5,809) (3,887)
Translation adjustments (8,147) (8,147)
Change in appreciation in market
value of marketable securities
available-for-sale (1,140) (1,140)
Sale of available-for-sale
securities (2,547) (2,547)
Change in minimum pension
liability adjustment 5,809 5,809
-------- ------- ------- -------
Balance December 31, 1997 $ (9,912) $ - $ - $(9,912)
======== ======= ======= =======
</TABLE>
Note 7 - Leases
At December 31, 1997, the Company was committed under operating leases
which expire at various dates through 2008. Total rent expense under operating
leases for the years 1997, 1996, and 1995 was $11,495, $12,216 and $11,594
respectively.
Minimum lease payments under non-cancelable operating leases are as
follows:
1998 $ 8,412
1999 6,023
2000 4,340
2001 2,562
2002 1,921
Beyond 2002 3,182
-------
Total minimum obligation $26,440
=======
32
<PAGE>
Note 8 - International Operations
A portion of the Company's revenues and assets relate to international
operations. The Company has manufacturing and assembly operations in Canada,
Mexico, the United Kingdom, France, Germany, the Czech Republic, Estonia,
Taiwan, India, Japan and the Peoples Republic of China and sales offices in a
number of other countries. Amounts included in the accompanying consolidated
financial statements associated with operations outside the United States
consist of the following:
Year Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Net sales:
United States operations $ 581,278 $ 503,385 $534,322
International operations:
Europe 230,923 233,670 217,143
Other 133,355 92,689 78,442
Eliminations (61,208) (53,523) (46,674)
--------- --------- --------
Net sales $ 884,348 $ 776,221 $783,233
========= ========= ========
Income before extraordinary item:
United States operations $ 22,358 $ 42,614 $ 46,493
International operations:
Europe 19,387 21,954 16,266
Other 9,519 3,010 99
--------- --------- --------
Income before extraordinary item $ 51,264 $ 67,578 $ 62,858
========= ========= ========
Identifiable assets:
United States operations $ 478,685 $ 473,889 $458,313
International operations:
Europe 174,190 172,640 170,319
Other 99,063 75,560 73,406
Eliminations (14,784) (11,427) (12,114)
--------- --------- --------
Total assets $ 737,154 $ 710,662 $689,924
========= ========= ========
Note: Corporate income (loss) and assets are included in United States
operations.
The Company had export sales from its United States operations of
approximately $88,000, $80,000 and $118,000 in 1997, 1996 and 1995,
respectively. The sales were made principally to the Far East, Europe and Latin
America.
Pursuant to SFAS No. 52, "Foreign Currency Translation," the financial
position and results of operations of all of the Company's significant foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of such subsidiaries have been translated at current
exchange rates, and related revenues and expenses have been translated at
weighted average exchange rates. The aggregate effect of translation adjustments
so calculated is included as a separate component of shareholders' equity.
Transaction gains and losses are included in other expenses, net in the
accompanying Consolidated Statement of Income.
The Company periodically enters into foreign exchange contracts to hedge
its transaction exposures. At December 31, 1997, the Company had no outstanding
foreign exchange contracts.
Note 9 - Other Expenses, net
Other income (expense) is comprised as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
-------- -------- --------
Interest income $ 234 $ 784 $ 134
Foreign currency transaction gains 1,283 339 205
Program fees on sale of accounts receivable (3,671) (3,504) (3,902)
Minority interests (1,042) (251) (407)
Gain on sale of marketable securities 3,917
Agency and commitment fees (678) (257) (246)
Other (1,104) (807) (299)
------- ------- -------
$(1,061) $(3,696) $(4,515)
======= ======= =======
33
<PAGE>
Note 10 - Commitments and Contingencies
In the course of pursuing its normal business activities, the Company is
involved in various legal proceedings and claims. Management does not expect
that amounts, if any, which may be required to be paid by reason of such
proceedings or claims will have a material effect on the Company's financial
position or results of operations.
Subsequent to the acquisition of Amphenol from Allied Signal Corporation
("Allied") in 1987, Amphenol and Allied have been named jointly and severally
liable as potentially responsible parties in relation to several environmental
cleanup sites. Amphenol and Allied have jointly consented to perform certain
investigations and remedial and monitoring activities at two sites and they have
been jointly ordered to perform work at another site. The responsibility for
costs incurred relating to these sites is apportioned between Amphenol and
Allied based on an agreement entered into in connection with the acquisition.
For sites covered by this agreement, to the extent that conditions or
circumstances occurred or existed at the time of or prior to the acquisition,
the first $13,000 of costs are borne by Amphenol and had been incurred as of
December 31, 1996. Allied is obligated to pay 80% of the excess over $13,000 and
100% of the excess over $30,000. Management does not believe that the costs
associated with resolution of these or any other environmental matters will have
a material adverse effect on the Company's financial condition or results of
operations.
A subsidiary of the Company has an agreement with a financial institution
whereby the subsidiary can sell an undivided interest of up to $60,000 in a
designated pool of qualified accounts receivable. The agreement expires in May
2004. Under the terms of the agreement, new receivables are added to the pool as
collections reduce previously sold accounts receivable. The Company services,
administers and collects the receivables on behalf of the purchaser. Fees
payable to the purchaser under this agreement are equivalent to rates afforded
high quality commercial paper issuers plus certain administrative expenses and
are included in other expenses, net, in the accompanying Consolidated Statement
of Income. The agreement contains certain covenants and provides for various
events of termination. In certain circumstances the Company is contingently
liable for the collection of the receivables sold; management believes that its
allowance for doubtful accounts is adequate to absorb the expense of any such
liability. During 1997, the Company adopted SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
Adoption had no effect on the Company's financial statements. At December 31,
1997 and December 31, 1996, approximately $60,000 and $50,000, respectively, in
receivables were sold under the agreement and are therefore not reflected in the
accounts receivable balance in the accompanying Consolidated Balance Sheet.
Note 11 - Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and short-term cash investments: The carrying amount approximates
fair value because of the short maturity of those instruments.
Long-term debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities.
Investments: The fair value of investments is based upon quoted market
prices. The fair value equals the carrying value of equity investments, which
are classified as available-for-sale.
At December 31, 1996 based on market quotes for the same or similar
securities, it is estimated that the Company's 12.75% Subordinated Debentures
due 2002 and 10.45% Senior Notes due 2001 were trading at premiums of
approximately 15% over book value. At December 31, 1997, based on market quotes
for the same or similar securities it is estimated that the Company's 9 7/8%
Subordinated Debentures were trading at a premium of 5% over book value. The
book value of the Company's other long-term debt approximates fair value.
The Company periodically uses derivative financial instruments. The
instruments are primarily used to manage defined interest rate risk, and to a
lesser extent foreign exchange and commodity risks arising out of the Company's
core activities. During 1995, the Company used forward contracts to hedge
certain foreign currency exposures. There were no derivative financial
instruments outstanding at December 31, 1996. In 1997, the Company entered into
interest rate swaps to limit exposure to interest rate fluctuations on the
Company's floating rate bank debt. At December 31, 1997, the Company had
$450,000 of interest rate swaps outstanding as described in Note 3. While it is
not the Company's intention to terminate the interest rate protection
agreements, the fair values were estimated by obtaining quotes from brokers
which represented the amounts that the Company would receive or pay if the
agreements were terminated at December 31, 1997. These fair values indicated
that termination of the agreements at December 31, 1997 would have resulted in a
pretax loss of $3,085. Due to the volatility of interest rates, these estimated
results may or may not be realized.
The Company does not utilize financial instruments for trading or other
speculative purposes. It is estimated that the carrying value of the Company's
other financial instruments at December 31, 1997 and 1996 approximates fair
value.
34
<PAGE>
Note 12 - Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $211,773 $226,996 $223,494 $222,085
Gross profit, including depreciation 69,583 75,682 74,002 74,069
Income before extraordinary items 17,497 15,774 8,559 9,434
Income per share before extraordinary item .39 .50 .49 .54
Income per share before extraordinary item
assuming dilution .39 .49 .48 .53
Net income (loss) 17,497 2,929 8,559 (2,268)
Net income (loss) per share .39 .09 .49 (.13)
Net income (loss) per share assuming dilution .39 .09 .48 (.13)
Stock price - High 26 38 7/8 43 1/2 56
- Low 21 3/4 24 1/8 39 1/16 44
1996
Net sales $194,822 $198,921 $184,876 $197,602
Gross profit, including depreciation 66,639 67,816 63,523 66,539
Net income 16,940 17,408 16,697 16,533
Net income per share (1) .36 .37 .36 .37
Stock price - High 26 27 5/8 22 7/8 23
- Low 20 1/8 19 7/8 18 3/4 19
1995
Net sales $197,975 $207,584 $189,012 $188,662
Gross profit, including depreciation 63,840 67,267 64,630 64,771
Net income 14,221 16,065 16,090 16,482
Net income per share (1) .30 .34 .34 .35
Stock price - High 27 1/2 30 3/8 29 1/2 24 1/4
- Low 20 23 3/4 21 1/2 18 3/4
</TABLE>
(1) Net income per share assuming dilution is equal to net income per share.
35
<PAGE>
Item 9. Changes in and Disagreements with Independent Accountants on Accounting
and Financial Disclosure
A current report on Form 8-K dated June 20, 1997 was filed with the
Securities and Exchange Commission on June 20, 1997, reporting information under
Items 4 and 7 thereof that Deloitte and Touche LLP had been appointed as the
Registrant's certified public accountants replacing Price Waterhouse LLP
effective June 13, 1997.
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to Instruction G(3) to Form 10-K, the information required by
Item 10 with respect to the Directors of the Registrant is incorporated by
reference from the Company's definitive proxy statement which is expected to be
filed pursuant to Regulation 14A within 120 days following the end of the fiscal
year covered by this report.
The information required by Item 10 with respect to the Executive Officers
of the Registrant has been included in Part I of this Form 10-K in reliance on
General Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
Item 11. Executive Compensation
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 11 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 12 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 13 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
36
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements Page
Report of Management 19
Independent Auditors' Reports 19
Consolidated Statement of Income -
Years Ended December 31, 1997, December 31, 1996, and
December 31, 1995 20
Consolidated Balance Sheet -
December 31, 1997 and December 31, 1996 21
Consolidated Statement of Changes in Shareholders' Equity (Deficit) -
Years Ended December 31, 1997, December 31, 1996, and
December 31, 1995 22
Consolidated Statement of Cash Flow -
Years Ended December 31, 1997, December 31, 1996, and
December 31, 1995 23
Notes to Consolidated Financial Statements 24
(a)(2) Financial Statement Schedules for the Three Years Ended December 31, 1997
All financial statement schedules are omitted because they are not applicable or
required, or because the required information is included in the consolidated
financial statements or notes thereto.
37
<PAGE>
(a) Listing of Exhibits
2.1 Agreement and Plan of Merger dated as of January 23, 1997 between NXS
Acquisition Corp. and Amphenol Corporation (incorporated by reference to
Current Report on Form 8-K dated January 23, 1997).*
2.2 Amendment, dated as of April 9, 1997, to the Agreement and Plan of Merger
between NXS Acquisition Corp. and Amphenol Corporation, dated as of
January 23, 1997 (incorporated by reference to the Registration Statement
on Form S-4 (registration No. 333-25195) filed on April 15, 1997).*
3.1 Certificate of Merger, dated May 19, 1997 (including Restated Certificate
of Incorporation of Amphenol Corporation). (filed as Exhibit 3.1 to the
June 30, 1997 10-Q).*
3.2 By-Laws of the Company as of May 19, 1997 - NXS Acquisition Corp. By-Laws
(filed as Exhibit 3.2 to the June 30, 1997 10-Q).*
4.1 Indenture between Amphenol Corporation and IBJ Schroeder Bank and Trust
Company, as Trustee, dated as of May 19, 1997, relating to Senior
Subordinated Notes due 2007 (filed as Exhibit 4.1 to the June 30, 1997
10-Q).*
10.1 Amended and Restated Receivables Purchase Agreement dated as of May 19,
1997 among Amphenol Funding Corp., the Company, Pooled Accounts Receivable
Capital Corporation and Nesbitt Burns Securities, Inc., as Agent (filed as
Exhibit 10.1 to the June 30, 1997 10-Q).*
10.2 Amended and Restated Purchase and Sale Agreement dated as of May 19, 1997
among the Originators named therein, Amphenol Funding Corp. and the
Company (filed as Exhibit 10.2 to the June 30, 1997 10-Q).*
10.3 Credit Agreement dated as of May 19, 1997 among the Company, Amphenol
Holding UK, Limited, Amphenol Commercial and Industrial UK, Limited, the
Lenders listed therein, The Chase Manhattan Bank, as Syndication Agent,
the Bank of New York, as Documentation Agent and Bankers Trust Company, as
Administrative Agent and Collateral Agent (filed as Exhibit 10.3 to the
June 30, 1997 10-Q).*
Management Contracts and Compensatory Plans (Exhibit 10.4 through 10.11).
10.4 1997 Amphenol Incentive Plan (filed as Exhibit 10.13 to the 1996 10-K).*
10.5 1998 Amphenol Incentive Plan.
10.6 Amended and Restated Salaried Employees Pension Plan of Amphenol
Corporation (filed as Exhibit 10.12 to the 1994 10-K).*
10.7 Amended and Restated LPL Technologies Inc. Retirement Plan for Salaried
Employees (filed as Exhibit 10.13 to the 1994 10-K).*
- ----------
* Incorporated herein by reference as stated.
38
<PAGE>
10.8 Amphenol Corporation Supplemental Employee Retirement Plan formally
adopted effective January 25, 1996 (filed as Exhibit 10.18 to the 1996
10-K).*
10.9 LPL Technologies Inc. and Affiliated Companies Employee Savings/401 (k)
Plan, dated and adopted January 23, 1990 (filed as Exhibit 10.19 to the
1991 Registration Statement).*
10.10 Management Agreement between the Company and Dr. Martin H. Loeffler, dated
July 28, 1987 (filed as Exhibit 10.7 to the 1987 Registration Statement).*
10.11 Amphenol Corporation Directors' Deferred Compensation Plan.
10.12 Agreement and Plan of Merger among Amphenol Acquisition Corporation,
Allied Corporation and the Company, dated April 1, 1987, and the Amendment
thereto dated as of May 15, 1987 (filed as Exhibit 2 to the 1987
Registration Statement).*
10.13 Settlement Agreement among Allied Signal Inc., the Company and LPL
Investment Group, Inc. dated November 28, 1988 (filed as Exhibit 10.20 to
the 1991 Registration Statement).*
10.14 Registration Rights Agreement dated as of May 19, 1997, among NXS
Acquisition Corp., KKR 1996 Fund L.P., NXS Associates L.P., KKR Partners
II, L.P. and NXS I, L.L.C. (filed as Exhibit 99.5 to Schedule 13D,
Amendment No. 1, relating to the beneficial ownership of shares of the
Company's Common Stock by NXS I, L.L.C., KKR 1996 Fund, L.P., KKR
Associates (1996) L.P., KKR 1996 GP LLC, KKR Partners II, L.P., KKR
Associates L.P., NXS Associates L.P., KKR Associates (NXS) L.P., and
KKR-NXS L.L.C. dated May 27, 1997).*
10.15 Management Stockholder's Agreement entered into as of May 19, 1997 between
the Company and Martin H. Loeffler (filed as Exhibit 10.13 to the June 30,
1997 10-Q).*
10.16 Management Stockholder's Agreement entered into as of May 19, 1997 between
the Company and Edward G. Jepsen (filed as Exhibit 10.14 to the June 30,
1997 10-Q).*
10.17 Management Stockholder's Agreement entered into as of May 19, 1997 between
the Company and Timothy F. Cohane (filed as Exhibit 10.15 to the June 30,
1997 10-Q).*
10.18 1997 Option Plan for Key Employees of Amphenol and Subsidiaries (filed as
Exhibit 10.16 to the June 30, 1997 10-Q).*
10.19 Non-Qualified Stock Option Agreement between the Company and Martin H.
Loeffler dated as of May 19, 1997 (filed as Exhibit 10.17 to the June 30,
1997 10-Q).*
10.20 Non-Qualified Stock Option Agreement between the Company and Edward G.
Jepsen dated as of May 19, 1997 (filed as Exhibit 10.18 to the June 30,
1997 10-Q).*
- ----------
* Incorporated herein by reference as stated.
39
<PAGE>
10.21 Non-Qualified Stock Option Agreement between the Company and Timothy F.
Cohane dated as of May 19, 1997 (filed as Exhibit 10.19 to the June 30,
1997 10-Q).*
10.22 First Amendment to Amended and Restated Receivables Purchase Agreement
dated as of September 26, 1997 (filed as Exhibit 10.20 to the September
30, 1997 10-Q).*
10.23 Canadian Purchase and Sale Agreement dated as of September 26, 1997 among
Amphenol Canada Corp., Amphenol Funding Corp. and Amphenol Corporation,
individually and as the initial servicer (filed as Exhibit 10.21 to the
September 30,1997 10-Q).*
10.24 Amended and Restated Credit Agreement dated as of October 3, 1997 among
the Company, Amphenol Holding UK, Limited, Amphenol Commercial and
Industrial UK, Limited, the Lenders listed therein, The Chase Manhattan
Bank, as Syndicated Agent, the Bank of New York, as Documentation Agent
and Bankers Trust Company, as Administrative Agent and Collateral Agent
(filed as Exhibit 10.22 to the September 30, 1997 10-Q).*
11 Statement regarding computation of per share earnings.
12 Statement regarding computation of ratio of earnings to fixed charges.
16 Letter regarding change in Certifying Accountant (filed as Exhibit 16 to
the June 20, 1997 Current Report on Form 8-K).*
22 Subsidiaries of the Company.
23 Consent of Price Waterhouse LLP.
27.1 1997 Financial Data Schedule
27.2 1997 Financial Data Schedules - Interim Periods only - Restated.
27.3 1996 Financial Data Schedules - Including Interim Periods only - Restated.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
40
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the Town of
Wallingford, State of Connecticut on the 27th day of March 1998.
AMPHENOL CORPORATION
/s/ Martin H. Loeffler
-----------------------------
Martin H. Loeffler
Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the date indicated below.
Signature Title Date
/s/ Martin H. Loeffler Chairman, Chief Executive Officer March 27, 1998
Martin H. Loeffler and President
(Principal Executive Officer)
/s/ Edward G. Jepsen Chief Financial Officer March 27, 1998
Edward G. Jepsen (Principal Financial Officer and
Principal Accounting Officer)
/s/ Andrew Clarkson Director March 27, 1998
Andrew Clarkson
/s/ G. Robert Durham Director March 27, 1998
G. Robert Durham
/s/ Henry R. Kravis Director March 27, 1998
Henry R. Kravis
/s/ Marc S. Lipschultz Director March 27, 1998
Marc S. Lipschultz
/s/ Michael W. Michelson Director March 27, 1998
Michael W. Michelson
/s/ George R. Roberts Director March 27, 1998
George R. Roberts
41
1998
AMPHENOL MANAGEMENT INCENTIVE PLAN
I. Purpose
The purpose of the Plan is to reward eligible key employees of Amphenol
Corporation and affiliated operations with cash bonus payments based on
contributions to overall results and specific accomplishments.
II. Eligibility
Select management personnel, as designated by the Chairman and the President.
Generally, participation includes senior management positions, corporate staff
managers, general managers and their designated direct reports.
III. Plan Components
There are several key performance factors which will be considered by executive
management and the Compensation Committee. These include, but are not limited
to, the following:
o Year-over-year improvement
o Accomplishments against budget
o Customer satisfaction
o Quality management
o New market/new product positioning
o Cost reductions/productivity improvements
o Balance sheet management
o Overall Amphenol performance
Financial performance will be measured by revenues, operating income, cash flow
of operating units and EPS growth for total Amphenol..
IV. Administration
o Generally, payments are made as soon as possible during the first calendar
quarter following the plan year. All payments are subject to the
recommendation of the Chairman and President and to the approval of the
Compensation Committee.
o Payments are based upon average based salary during the plan year (new
hires will be prorated accordingly if hired prior to October 1 of plan
year).
o The maximum allowable payout under the plan cannot exceed 2x target bonus
as applied to average base salary.
o To be eligible for payment, a participant must be an active employee
during the payroll period of bonus payment. Exceptions must be recommended
by the Chairman and the President and be approved by the Compensation
Committee.
<PAGE>
Amphenol Corporation
DIRECTORS' DEFERRED COMPENSATION PLAN
<PAGE>
Amphenol Corporation
DIRECTORS' DEFERRED COMPENSATION PLAN
Table of Contents
ARTICLE I Definitions ..................................................... 1
ARTICLE II Election to Defer ............................................... 2
ARTICLE III Deferred Compensation Accounts .................................. 2
ARTICLE IV Payment of Deferred Compensation ................................ 4
ARTICLE V Administration .................................................. 4
ARTICLE VI Amendment of Plan ............................................... 5
<PAGE>
ARTICLE I
DEFINITIONS
1.1 "Board" shall mean the Board of Directors of Amphenol Corporation.
1.2 "Director" shall mean a member of the Board of Directors of the Company ho
is not an employee of the Company or any of its subsidiaries.
1.3 "Plan" shall mean this Deferred Compensation Plan for Directors as it may
be amended from time to time.
1.4 "Fees" shall mean amounts earned for serving as a member of the Board,
including any committees of the Board.
1.5 "Year" shall mean calendar year.
1.6 "Cash Account" shall mean the account created by the Company pursuant to
Article III of this Plan in accordance with an election by a Director to
receive deferred cash compensation under Article II hereof.
1.7 "Common Stock" shall mean the Common Stock of the Company.
1.8 "Company" means Amphenol Corporation.
1.9 "Stock Account" shall mean the account created by the Company pursuant to
Article III of this Plan in accordance with an election by a Director to
receive stock compensation under Article II hereof.
1.10 "stock Value' shall mean, for any given day, the closing price of the
Company's Common Stock as reported on the New York Stock Exchange Inc.
("NYSE") Composite Tape on such day. If the closing price is not available
from the NYSE for the Common stock on a date in question, then the next
preceding practicable date for which such closing price is available shall
be used.
1.11 "He", "Him" or "His" shall apply equally to male and female members of the
Board.
<PAGE>
2
ARTICLE II
ELECTION TO DEFER
2.1 A Director may elect, on or before December 31 of any Year, to defer
payment of all or a specified part of all Fees earned during the Year
following such election and succeeding Years (until the Director ceases to
be a Director or changes his election pursuant to Paragraph 2.3);
provided, however, that with respect to Year 1997 a Director may elect, on
or before August 31, 1997, to defer all or a specified part of all Fees
earned on or after August 31, 1997. Any person who shall become a Director
during any Year, and who was not a Director of the Company on the
preceding December 31, may elect, before the Director during any Year, and
who was not a Director of the Company on the preceding December 31, may
elect, before the Director's term begins, to defer payment of all or a
specified part of such Fees earned during the remainder of such Year and
for succeeding Years.
2.2 The election to participate in the plan and manner of payment shall be
designated by submitting a letter in the form attached hereto as Appendix
A to the Secretary of the Company.
2.3 The election shall continue form Year to Year unless the Director
terminates it by written request delivered to the Secretary of the Company
prior to the commencement of the Year for which the termination is first
effective.
ARTICLE III
DEFERRED COMPENSATION ACCOUNTS
3.1 The Company shall maintain separate memorandum accounts for the Fees
deferred by each Director.
3.2 The Company shall credit, on the date Fees become payable, to the Cash
Account of each Director the deferred portion of any Fees due the Director
as to which an election to receive cash has been made. Fees deferred in
the form of cash (and interest thereon) shall be held in the general funds
of the Company.
3.3 On the first day of each quarter, the Company shall credit the Cash
Account of each Director with interest calculated on the basis of the
Balance in such account on the first day of each month of the preceding
quarter oat the Company's average borrowing rate as in effect from time to
time.
3.4 The Company shall credit, on the date Fees become payable, the Stock
account of each Director with the number of shares of Common Stock which
is equal to the
<PAGE>
3
deferred portion of any Fee due the Director as to which an election to
receive the Company Common Stock has been made, divided by the Stock Value
on the date such fees would otherwise have been paid. For purposes of this
Section 3.4, the Stock Value shall be determined on the date fees would
otherwise have been paid.
3.5 The Company shall credit the Stock Account of each Director who has
elected to receive deferred compensation in the form of Common Stock with
the number shares of Common Stock equal to any cash dividends (or the fair
market value of dividends paid in property other than dividends payable in
Common Stock) payable on the number of shares of Common Stock represented
in each Director's Stock Account in the form of the right to receive
Common Stock. If adjustments are made to the outstanding shares of Common
Stock as a result of split-ups, recapitalizations, mergers, consolidations
and the like, and appropriate adjustment also will be made in the number
of Shares of Common stock credited to the Director's Stock Account.
3.6 Common Stock shall be computed to three decimal places.
3.7 The right to receive Common Stock at a later date shall not entitle any
person to rights of a stockholder with respect to such Common Stock unless
and until shares of Common Stock have been issued to such person pursuant
to Article IV hereof.
3.8 The Company shall not be required to acquire, reserve, segregate, or
otherwise set aside shares of its Common Stock for the payment of its
obligations under the Plan, but shall make available as and when required
a sufficient number of shares of its Common Stock to meet the needs of the
Plan.
3.9 Nothing contained herein shall be deemed to create a trust of any kind or
any fiduciary relationship. To the extent that any person acquires a right
to receive payments from the Company under the Plan, such right shall be
no greater than the right of any unsecured general creditor of the
Company.
<PAGE>
4
ARTICLE IV
PAYMENT OF DEFFERED COMPENSATION
4.1 Subject to the second succeeding sentence, amounts contained in a
Director's Cash Account and/or Stock Account shall be distributed as the
Director's election (made pursuant to Paragraph 2.2 of Article II hereof)
shall provide. Distributions from the Director's Cash account shall begin
with the first day of the Year following the Director's retirement for
separation from the Board. Distributions from the Director's Stock Account
shall begin with the later of the first day of the Year following the
Director's retirement or separation from the Board or six months after
such event. Amounts credited to a Director's Cash Account shall be paid in
cash. Amounts credited to a Director's Stock Account shall be paid in
Common Stock.
4.2 Each Director shall have the right to designate a beneficiary who is to
succeed to his right to receive payments hereunder in the event of death.
Any designated beneficiary shall receive payments in the same manner as
the Director if he had lived. In case of a failure of designation or the
death of a designated beneficiary without a designated successor, the
balance of the amounts contained in the Director's Cash Account and/or
Stock Account shall be payable in accordance with Section 4.1 to the
Director's or former Directors' estate in full on the first day of the
Year following the Year in which he dies. No designation of beneficiary or
change in beneficiary shall be valid unless in writing signed by the
Director and filed with the Secretary of the Company.
ARTICLE V
ADMINISTRATION
5.1 The Company shall administer the Plan at its expense. All decisions made
by the Company with respect to issues hereunder shall be final and binding
on all parties.
5.2 Except to the extent required by law, the right of any Director or any
beneficiary to any benefit or to any payment hereunder shall not be
subject in any manner to attachment or other legal process for the debts
of such Director or beneficiary; and any such benefit or payment shall not
be subject to alienation, sale, transfer, assignment or encumbrance.
<PAGE>
5
ARTICLE VI
AMENDMENT OF PLAN
6.1 The plan may be amended, suspended or terminated in whole or in part from
time to time by the Board except that no amendment, suspension, or
termination shall apply to the payment to any Director or beneficiary of a
deceased Director of any amounts previously credited to a Director's Cash
Account or Stock Account.
<PAGE>
APPENDIX A
____________________________ Date_________________
Corporate Secretary
Amphenol Corporation
____________________________
____________________, ______ _____
Dear Mr. ____________:
Pursuant to the Amphenol Corporation Directors' Deferred Compensation
Plan, as amended to date (the "Plan"), I hereby elect to defer receipt of all or
a portion of my Director's fees commencing August 31, 1997 and for succeeding
calendar years commencing January 1, 1998 in accordance with the percentages
indicated below.
I elect to have my Director's fees (and committee fees, if any) credited
as follows (fill in appropriate percentages for options a, b and c, below.
(a) ____________% of the aggregate Director's fees shall be credited to
my Cash Account as defined in the Plan;
(b) ____________% of the aggregate Director's fees shall be credited to
my Stock Account as defined in the Plan;
(c) ____________% of the aggregate Director's fees shall not be
deferred, but shall be paid to me directly as they accrue.
Further, I elect to receive the payment's pursuant to the Plan (check
method desired, below):
____________ in one lump sum
____________in____________ equal annual installments
Further, I understand that my Cash Account shall become payable on the
first day of January or as soon thereafter as is practicable following my
retirement or separation from the Board. Further, I understand that my Stock
Account will become payable the later of the first day of January following my
retirement or separation from the Board or six months after such event.
In the event of my death prior to receipt of all or any balance of such
fees and interest or dividends thereon so accumulated, I designate ____________
as my beneficiary to receive the funds so accumulated.
Very truly yours,
AMPHENOL CORPORATION
Computation of Per Share Earnings
For the Three Years Ended December 31, 1997
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Income before extraordinary item ................... $ 51,264 $ 67,578 $ 62,858
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes .......................... (24,547) -- --
------------ ----------- -----------
Net income applicable to Common Stock .............. $ 26,717 $ 67,578 $ 62,858
============ =========== ===========
Net income per common share:
Income before extraordinary item ............. $ 1.84 $ 1.45 $ 1.33
Extraordinary loss ........................... (.88) -- --
------------ ----------- -----------
Net income ................................... $ .96 $ 1.45 $ 1.33
============ =========== ===========
Average common shares outstanding .................. 27,806,260 46,649,541 47,304,180
============ =========== ===========
Net income per common share - assuming dilution:
Income before extraordinary item ............. $ 1.83 $ 1.45 $ 1.33
Extraordinary loss ........................... (.88) -- --
------------ ----------- -----------
Net income ................................... $ .95 $ 1.45 $ 1.33
============ =========== ===========
Average common shares outstanding .................. 27,806,260 46,649,541 47,304,180
Employee stock options ............................. 196,717 71,359 107,835
------------ ----------- -----------
Average common shares outstanding assuming dilution 28,002,977 46,720,900 47,412,015
============ =========== ===========
</TABLE>
EXHIBIT 12
AMPHENOL CORPORATION
Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Amphenol Historical
-------------------------------------------
Year Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before income taxes
and extraordinary items ........ $ 87,174 $109,665 $104,627 $ 69,509 $ 38,076
Non-recurring acquisition expenses 2,500 -- -- -- --
Undistributed earnings of
investments .................... -- -- 60 (272) (410)
-------- -------- -------- --------- --------
89,674 109,665 104,687 69,237 37,666
-------- -------- -------- --------- --------
Fixed charges:
Interest ....................... 64,713 24,617 25,548 30,382 41,184
Other financing fees ........... 3,671 3,504 3,902 3,180 1,186
Appropriate portion of rentals
representative of the interest
factor ......................... 3,832 4,072 3,865 3,369 3,422
-------- -------- -------- --------- --------
Total fixed charges ......... 72,216 32,193 33,315 36,931 45,792
-------- -------- -------- --------- --------
Earnings from continuing operations
before non-recurring acquisition
expenses, undistributed earnings of
investments, income taxes, fixed
charges and extraordinary items $161,890 $141,858 $138,002 $ 106,168 $ 83,458
======== ======== ======== ========= ========
Ratio of earnings to fixed charges 2.2x 4.4x 4.1x 2.9x 1.8x
======== ======== ======== ========= ========
</TABLE>
EXHIBIT 22
<TABLE>
<CAPTION>
State/Country Name(s) under which Subsidiary
List of Subsidiaries of Incorporation does business (1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Amphenol Australia Pty Ltd. Australia
Amphenol Benelux B.V. The Netherlands Amphenol
Amphenol Borg Limited England
Amphenol do Brasil Brazil Amphenol
Amphenol Canada Corp. Ontario, Canada Amphenol
Amphenol East Asia Limited Hong Kong AEAL, AEAM, Amphenol
Amphenol FSC Barbados
Amphenol Funding Corporation Delaware, U.S.A.
Amphenol Gesellschaft m.b.H. Austria Amphenol
Amphenol Interconnect Products Corporation Delaware, U.S.A. AIPC
Amphenol International Ltd. Delaware, U.S.A.
Amphenol Italia, S.p.A. Italy Amphenol
Amphenol Japan K.K. Japan Amphenol
Amphenol Limited England Amphenol
Amphenol Socapex S.A.S. France Socapex
Amphenol Aerospace France, Inc. Delaware, U.S.A.
Amphenol Commercial & Industrial
France, L.L.C. Delaware, U.S.A.
Amphenol Taiwan Corporation Taiwan Amphenol
Amphenol-Tuchel Electronics GmbH Germany Tuchel
Amphetronix Limited India Amphetronix
Amphenol-TFC (Changzhou)
Communications Equipment Co. Ltd. China Amphenol, Times Fiber, TFC
Kai Jack Industrial Co., Ltd. Taiwan Kai Jack
LPL Technologies Holding GmbH Germany
Optimize Manufacturing Co. Arizona, U.S.A. Optimize
Productos de Memoria S.A. de C.V. Mexico
Pyle-National Ltd. England Pyle-National
Pyle-National of Canada Inc. Ontario, Canada Pyle-National
Spectra Strip Limited England
TFC South America, S.A. Argentina Times Fiber
Sine Systems*Pyle Connectors Corporation Delaware, U.S.A. Sine, Pyle-National
Times Fiber Communications, Inc. Delaware, U.S.A. Times Fiber
Times Fiber Canada Limited Ontario, Canada Times Fiber
Matir, S.A. Uruguay
</TABLE>
(1) Each subsidiary also does business under the corresponding corporate name
listed in column 1.
EXHIBIT 23
Consent of Price Waterhouse LLP
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-22521) and
Form S-8 (No. 333-35901) of Amphenol Corporation of our report dated January 14,
1997, except as to the restatement of net income per common share for the two
years ended December 31, 1996 as described in Note 1 under the caption "Net
Income per Share," which is as of March 25, 1998, appearing on page 19 of this
Form 10-K.
Price Waterhouse LLP
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,713
<SECURITIES> 0
<RECEIVABLES> 71,670
<ALLOWANCES> (1,633)
<INVENTORY> 167,010
<CURRENT-ASSETS> 254,780
<PP&E> 281,376
<DEPRECIATION> (169,784)
<TOTAL-ASSETS> 737,154
<CURRENT-LIABILITIES> 117,254
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> (343,145)
<TOTAL-LIABILITY-AND-EQUITY> 737,154
<SALES> 884,348
<TOTAL-REVENUES> 884,348
<CGS> 572,092
<TOTAL-COSTS> 572,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (64,713)
<INCOME-PRETAX> 87,174
<INCOME-TAX> 35,910
<INCOME-CONTINUING> 51,264
<DISCONTINUED> 0
<EXTRAORDINARY> (24,547)
<CHANGES> 0
<NET-INCOME> 26,717
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.83
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 7,688 10,065 6,822
<SECURITIES> 0 0 0
<RECEIVABLES> 76,600 84,723 84,216
<ALLOWANCES> (2,086) (2,014) (2,004)
<INVENTORY> 159,745 163,507 161,010
<CURRENT-ASSETS> 253,879 269,699 262,394
<PP&E> 270,525 265,807 266,190
<DEPRECIATION> (166,428) (164,124) (164,366)
<TOTAL-ASSETS> 747,746 764,891 731,775
<CURRENT-LIABILITIES> 123,022 124,952 128,727
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 20 20 47
<OTHER-SE> (344,374) (353,081) 372,187
<TOTAL-LIABILITY-AND-EQUITY> 747,746 764,891 731,775
<SALES> 662,263 438,769 211,773
<TOTAL-REVENUES> 662,263 438,769 211,773
<CGS> 428,682 283,985 137,522
<TOTAL-COSTS> 428,682 283,985 137,522
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (43,662) (20,671) (6,422)
<INCOME-PRETAX> 70,382 55,278 28,450
<INCOME-TAX> 28,552 22,007 10,953
<INCOME-CONTINUING> 41,830 33,271 17,497
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (12,845) (12,845) 0
<CHANGES> 0 0 0
<NET-INCOME> 26,985 20,426 17,497
<EPS-PRIMARY> 1.34 .87 .39
<EPS-DILUTED> 1.33 .87 .39
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 3,984 2,941 20,936 28,259
<SECURITIES> 0 0 0 0
<RECEIVABLES> 66,772 73,325 79,697 80,210
<ALLOWANCES> (1,868) (1,657) (2,007) (1,989)
<INVENTORY> 153,283 151,901 142,006 142,936
<CURRENT-ASSETS> 233,782 237,874 253,388 263,514
<PP&E> 265,185 260,091 253,273 249,734
<DEPRECIATION> (163,110) (159,142) (155,293) (152,172)
<TOTAL-ASSETS> 710,662 709,641 712,382 726,960
<CURRENT-LIABILITIES> 96,918 98,676 96,989 124,499
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 47 47 47 47
<OTHER-SE> 360,501 372,278 377,044 360,909
<TOTAL-LIABILITY-AND-EQUITY> 710,662 709,641 712,382 726,960
<SALES> 776,221 578,619 393,743 194,822
<TOTAL-REVENUES> 776,221 578,619 393,743 194,822
<CGS> 494,689 367,942 250,806 123,928
<TOTAL-COSTS> 494,689 367,942 250,806 123,928
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> (24,617) (18,240) (12,143) (6,052)
<INCOME-PRETAX> 109,665 82,999 56,586 28,233
<INCOME-TAX> 42,087 31,954 22,238 11,293
<INCOME-CONTINUING> 67,578 51,045 34,348 16,940
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 67,578 51,045 34,348 16,940
<EPS-PRIMARY> 1.45 1.08 .73 .36
<EPS-DILUTED> 1.45 1.08 .73 .36
</TABLE>
