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, 1999
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to______________
Commission file number 1-10879
AMPHENOL CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 22-2785165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
358 Hall Avenue, Wallingford, Connecticut 06492
203-265-8900
(Address, including zip code, and telephone
number, including area code, of Registrant's
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, $.001 par value New York Stock Exchange, Inc.
(Title of each Class) (Name of each Exchange
on which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of Amphenol Corporation common stock, $.001 Par
Value, held by non-affiliates was approximately $583 million based on the
reported last sale price of such stock on the New York Stock Exchange on
February 29, 2000.
As of February 29, 2000 the total number of shares outstanding of common stock
was 20,736,245.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement which is expected to be
filed within 120 days following the end of the fiscal year covered by this
report, are incorporated by reference into Part III hereof.
1
<PAGE>
<TABLE>
<CAPTION>
INDEX Page
<S> <C>
PART I 3
Item 1. Business 3
General 3
Business Segments 5
International Operations 7
Customers 7
Manufacturing 7
Research and Development 8
Trademarks and Patents 8
Competition 8
Backlog 8
Employees 9
Cautionary Statements for Purposes of Forward Looking Information 10
Item 2. Properties 11
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 7A. Quantitative and Qualitative Disclosures About Market Risk 19
Item 8. Financial Statements and Supplementary Data 20
Report of Management 20
Independent Auditors' Report 20
Consolidated Statement of Income 21
Consolidated Balance Sheet 22
Consolidated Statement of Changes in Shareholders' Equity (Deficit) 23
Consolidated Statement of Cash Flow 24
Notes to Consolidated Financial Statements 25
Item 9. Changes in and Disagreements with Independent Accountants on
Accounting and Financial Disclosure 38
PART III 38
Item 10.Directors and Executive Officers of the Registrant 38
Item 11.Executive Compensation 38
Item 12.Security Ownership of Certain Beneficial Owners and Management 38
Item 13.Certain Relationships and Related Transactions 38
PART IV 39
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
Signature of the Registrant 43
Signatures of the Directors 43
</TABLE>
2
<PAGE>
PART I
Item 1. Business
General
Amphenol Corporation ("Amphenol" or the "Company") is one of the world's
largest designers, manufacturers and marketers 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:
o communication systems for the converging technologies of voice,
video and data communications;
o commercial and military aerospace electronics applications; and
o industrial factory automation equipment and automotive and mass
transportation applications.
The Company focuses on optimizing its mix of higher margin, higher growth
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
1993 to 15.9% in 1999. For 1999 the Company reported net sales, operating profit
and net income before an extraordinary item of $1,010.6 million, $160.7 million
and $44.3 million, respectively. The table below summarizes information
regarding the Company's primary markets and end applications for the Company's
products:
<TABLE>
<CAPTION>
Commercial and Industrial, Transportation
Communications Military Aerospace and Other
------------------------- ------------------ --------------------------
<S> <C> <C> <C>
Percentage
of Sales 60% 19% 21%
Primary Voice Military and Commercial Factory Automation
End o wireless handsets and Aircraft Instrumentation Systems
Applications personal communication o avionics Automobile Safety Systems
devices o engine controls Mass Transportation Systems
o base stations and other o flight controls Oil Exploration
wireless infrastructure o entertainment systems
Video Missile Systems
o cable television coaxial Battlefield Communications
cables, connectors and Satellite and Space Station
set top converters Programs
Data
o cable modems
o personal computers and
related peripherals
</TABLE>
- ----------
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
3
<PAGE>
the world. The Company has developed a broad range of connector and interconnect
products to serve the rapidly growing and converging voice, video and data
communications markets. These markets include wireless communications including
cellular and personal communication networks, fiber optic networks and broadband
cable networks. Based primarily on published market research, the Company also
believes it is the leading supplier of high performance environmental connectors
that require superior performance and reliability under conditions of stress and
in hostile environments. These conditions are frequently encountered in
commercial and military aerospace applications and other demanding industrial
applications such as oil exploration, medical instrumentation and off-road
construction. The Company is also one of the leaders in developing interconnect
products for factory automation, machine tools, instrumentation systems, mass
transportation applications and automotive safety applications, including
airbags, pretensioner seatbelts and anti-lock braking systems.
The Company believes that the worldwide industry for interconnect products
and systems is highly fragmented with over 2,000 producers of connectors
worldwide, of which the 10 largest, including Amphenol, accounted for a combined
market share of approximately 34% in 1999. Industry analysts estimate that the
total sales for the industry were approximately $37 billion in 1999.
Our Times Fiber subsidiary is the world's second largest producer of
coaxial cable for the cable television market. The Company believes that its
Times Fiber unit 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. For example, Times Fiber was
the first to standardize a coaxial cable with a 1 GHZ bandwidth, and all of its
coaxial cable presently has that bandwidth capability. 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 is also a major supplier of coaxial cable to the
developing international cable television markets.
The Company is a global manufacturer employing advanced manufacturing
processes. The Company manufactures and assembles its products at facilities in
North America, South America, Europe, Asia and Australia. The Company sells its
connector products through its own global sales force and independent
manufacturers' representatives to thousands of OEMs in 54 countries throughout
the world as well as through a global network of electronics distributors. The
Company sells its coaxial cable products primarily to cable television operators
and to telecommunication companies who have entered the broadband communications
market. For the year 1999, approximately 57% of the Company's net sales were in
North America, 27% were in Europe and 16% were in Asia and other countries.
The Company implements its product development strategy through product
design teams and collaboration arrangements with customers which result in the
Company obtaining approved vendor status for its customers' new products and
programs. The Company seeks to have its products become widely accepted within
the industry for similar applications and products manufactured by other
potential customers, which the Company believes will provide additional sources
of future revenue. By developing application-specific products, the Company has
decreased its exposure to 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 it 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.
4
<PAGE>
Business Segments
The following table sets forth the dollar amounts of the Company's net
trade sales for its business segments. For a discussion of factors affecting
changes in sales by business segment, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
1999 1998 1997
- --------------------------------------------------------------------------------
(dollars in thousands)
Net trade sales by business segment:
Interconnect products and
assemblies $ 769,967 $ 718,109 $ 679,887
Cable products 240,636 200,768 204,461
---------- ---------- ----------
$1,010,603 $ 918,877 $ 884,348
========== ========== ==========
Net trade sales by geographic area:
United States operations $ 519,459 $ 499,891 $ 462,349
International operations (1) 491,144 418,986 421,999
---------- ---------- ----------
$1,010,603 $ 918,877 $ 884,348
========== ========== ==========
(1) Includes international coaxial cable sales, which are primarily export
sales.
- ----------
Interconnect Products and Assemblies. The Company produces a broad range
of interconnect products and assemblies primarily for voice, video and data
communication systems, commercial and military aerospace systems, automotive and
mass transportation applications, and industrial and factory automation
equipment. Interconnect products include connectors, which when attached to an
electronic or fiber optic cable, a printed circuit board or other device
facilitate electronic or fiber optic transmission. Interconnect assemblies
generally consist of a system of cable and connectors for linking electronic and
fiber optic equipment. The Company designs and produces a broad range of
connector products used in communication applications, such as: smart card
acceptor devices used in mobile GSM telephones, cable modems and other
applications to facilitate reading data from smart cards; fiber optic couplers
and connectors used in fiber optic signal transmission; input/output connectors
used for linking personal computers and peripheral equipment; and sculptured
flexible circuits used for integrating printed circuit boards in communication
applications. The Company also designs and produces a broad range of radio
frequency connector products used in telecommunications, computer and office
equipment, instrumentation equipment and local area networks. The Company's
radio frequency connectors are used in base stations, hand held sets and other
components of cellular and personal communications networks. The Company has
also developed a broad line of radio frequency connectors for coaxial cable for
full service cable television/telecommunication networks.
The Company believes, based primarily on published market research, that
it is the largest supplier of circular, military-specification connectors. Such
connectors require superior performance and reliability under conditions of
stress and in hostile environments. High performance environmental connectors
are generally used to interconnect electronic and fiber optic systems in
sophisticated aerospace, military, commercial and industrial equipment. These
applications present demanding technological requirements in that the connectors
can be subject to rapid and severe temperature changes, vibration, humidity and
nuclear radiation. Frequent applications
5
<PAGE>
of these connectors include aircraft, guided missiles, radar, military vehicles,
equipment for spacecraft, energy, medical instrumentation and geophysical
applications and off-road construction equipment. The Company also designs and
produces industrial interconnect products used in a variety of applications such
as factory automation equipment, mass transportation applications including
railroads and marine transportation; and automotive safety products including
interconnect devices and systems used in automotive airbags, pretensioner
seatbelts and anti-lock braking systems. The Company also designs and produces
highly-engineered cable assemblies. Such assemblies are specially designed by
the Company in conjunction with OEM customers for specific applications,
primarily for computer, wired and wireless communication systems and office
equipment applications. The cable assemblies utilize the Company's connector and
cable products as well as components purchased from others.
Cable Products. The Company designs, manufactures and markets coaxial
cable primarily for use in the cable television industry. The Company
manufactures two primary types of coaxial cable: semi-flexible, which has an
aluminum tubular shield, and flexible, which has one or more braided metallic
shields. Semi-flexible coaxial cable is used in the trunk and feeder
distribution portion of cable television systems, and flexible cable (also known
as drop cable) is used primarily for hookups from the feeder cable to the cable
television subscriber's residence. Flexible cable is also used in other
communication applications.
The rapid developments in fiber optic technologies, digital compression
(which allows several channels to be transmitted within the same bandwidth that
a single analog channel currently requires) and other communication
technologies, including the Company's development of higher capacity coaxial
cable, have resulted in technologies which enable cable television systems to
provide channel capacity in excess of 500 channels. Such expanded channel
capacity, along with other component additions, will permit cable operators to
offer full service networks with a variety of capabilities including near
video-on-demand, pay-per-view special events, home shopping networks,
interactive entertainment and education services, telephone services and
high-speed access to data resources such as the Internet. With respect to
expanded channel capacity systems, cable operators have generally adopted, and
the Company believes that for the foreseeable future will continue to adopt, a
cable system using both fiber optic cable and coaxial cable. Such systems
combine the advantages of fiber optic 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 communication 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 1999 only 31% of the television households in Europe subscribed to some
form of multichannel television service as compared to an estimated subscription
rate of 66% in the U.S. The estimated subscription rates in the Asian and Latin
American markets are even lower at approximately 17% and 14%, respectively. In
terms of television households, it is estimated that there are 256 million
television households in Europe, 453 million in Asia and 96 million in Latin
America. This compares to an estimated 96 million television households in the
U.S. In 1999, the Company had sales of coaxial cable in approximately 50
countries, and the Company believes the development of cable television systems
in international markets presents a significant opportunity to increase sales of
its coaxial cable products.
The Company is also a leading producer of flat-ribbon cable, a cable made
of wires assembled side by side such that the finished cable is flat.
Flat-ribbon cable is used to connect internal components in systems with space
and component configuration limitations. The product is used in computer and
office equipment components as well as in a variety of telecommunications
applications.
6
<PAGE>
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 49% of the
Company's sales for the year ended December 31, 1999 were outside the United
States. Approximately 55% of such international sales were in Europe. The
Company has manufacturing and assembly facilities in the United Kingdom,
Germany, France, Sweden, the Czech Republic, Estonia and sales offices in most
European markets. The Company's European operations generally have strong
positions in their respective local markets. The balance of the Company's
international activities are located primarily in the Far East, which includes
manufacturing facilities in Japan, Taiwan, People's Republic of China, Korea and
India. The Company's international manufacturing and assembly facilities
generally serve the respective local markets, and local operations coordinate
product design and manufacturing responsibility with the Company's other
operations around the world. In addition, the Company has low cost manufacturing
and assembly sources in Mexico, the People's Republic of China, the Czech
Republic, Estonia and Scotland to serve regional and world markets.
Customers
The Company's products are used in a wide variety of applications by
numerous customers, the largest of which is the U.S. government and its
subcontractors which accounted for approximately 7% of net sales for the year
ended December 31, 1999; however the Company participates across a broad
spectrum of government programs and believes that no single program accounted
for more than 2% of net sales. The Company sells its products at over 10,000
customer locations worldwide. 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.
The Company's sales to distributors represented approximately 25% of the
Company's 1999 sales. The Company's recognized brand names including "Amphenol,"
"Times Fiber," "Tuchel," "Socapex," "Sine," "Spectra-Strip," "Pyle-National,"
"Matrix," and "Kai Jack" 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
7
<PAGE>
service to customers. The Company sources its products on a worldwide basis with
manufacturing and assembly operations in North and South America, Europe, Asia
and Australia. To better serve high volume OEM customers, the Company has
established just-in-time facilities near major customers.
The Company's policy is to maintain strong cost controls in its
manufacturing and assembly operations. The Company has undertaken programs to
rationalize its production facilities, reduce expenses and maximize the return
on capital expenditures. The programs to improve productivity are ongoing.
The Company purchases a wide variety of raw materials for the manufacture
of its products, including precious metals such as gold and silver used in
plating; aluminum, brass, steel and copper used for cable, contacts and
connector shells; and plastic materials used for cable and connector bodies and
inserts. Such raw materials are generally available throughout the world and are
purchased locally from a variety of suppliers. The Company is not dependent upon
any one source for raw materials, or if one source is used the Company attempts
to protect itself through long-term supply agreements.
Research and Development
The Company's research, development and engineering expenditures for the
creation and application of new and improved products and processes were $18.5
million, $17.7 million and $15.3 million for 1999, 1998 and 1997, respectively.
The Company's research and development activities focus on selected product
areas and are performed by individual operating divisions. Generally, the
operating divisions work closely with OEM customers to develop highly-engineered
products that meet customer needs. The Company continues to focus its research
and development efforts primarily on those product areas that it believes have
the potential for broad market applications and significant sales within a
one-to-three year period.
Trademarks and Patents
The Company owns a number of active patents worldwide. While the Company
considers its patents to be valuable assets, the Company does not believe that
its competitive position is dependent on patent protection or that its
operations are dependent on any individual patent. The Company regards its
trademarks "Amphenol," "Times Fiber," "Tuchel", "Socapex," "Sine,"
"Spectra-Strip," "Pyle-National," "Matrix," and "Kai Jack" 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 are the primary world providers of such cable; however, CommScope is
larger than the Company in this market. In addition, the Company faces
competition from other companies that have concentrated their efforts in one or
more areas of the coaxial cable market.
Backlog
The Company estimates that its backlog of unfilled orders was $235.3
million and $221.5 million at December 31, 1999 and 1998, 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,
8
<PAGE>
such cancellations historically have not been significant. 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, 1999, the Company had approximately 8,000 full-time
employees worldwide. Of these employees, approximately 5,700 were hourly
employees, of which approximately 2,900 were represented by labor unions, and
the remainder were salaried. The Company had a one week strike in October 1995
at its Sidney, New York facility relating to the renewal of the labor contract
at that facility with the International Association of Machinists and Aerospace
Workers. The Company has not had any other work stoppages in the past ten years.
In 1997, the United States Steelworkers International Union, AFL-CIO established
a union, affecting approximately 500 employees, at the Company's plant in
Chatham, Virginia, the Company's primary plant for the production of coaxial
cable. The Company believes that it has a good relationship with its unionized
and non-unionized employees.
9
<PAGE>
Cautionary Statements for Purposes of Forward Looking Information
Statements made by the Company in written or oral form to various persons,
including statements made in filings with the SEC, that are not strictly
historical facts are "forward looking" statements. Such statements should be
considered as subject to uncertainties that exist in the Company's operations
and business environment. The following includes some, but not all, of the
factors or uncertainties that could cause the Company to fail to conform with
expectations and predictions:
- - A global economic slowdown in any one, or all, of the Company's market
segments.
- - The effects of extreme changes in monetary and fiscal policies in the U.S.
and abroad including extreme currency fluctuations and unforeseen
inflationary pressures.
- - Drastic and unforeseen price pressure on the Company's products or
significant cost increases that cannot be recovered through price
increases or productivity improvements.
- - Increased difficulties in obtaining a consistent supply of basic materials
like steel, aluminum, copper, gold or plastic resins at stable pricing
levels.
- - Unpredictable difficulties or delays in the development of new product
programs.
- - Significant changes in interest rates or in the availability of financing
for the Company or certain of its customers.
- - Rapid escalation of the cost of regulatory compliance and litigation.
- - Unexpected government policies and regulations affecting the Company or
its significant customers.
- - Unforeseen intergovernmental conflicts or actions, including but not
limited to armed conflict and trade wars.
- - Difficulties and unanticipated expense of assimilating newly-acquired
businesses.
- - Any difficulties in obtaining or retaining the management and other human
resource competencies that the Company needs to achieve its business
objectives.
- - The risks associated with any technological shifts away from the Company's
technologies and core competencies. For example, a technological shift
away from the use of coaxial cable in cable television/ telecommunication
systems could have a substantial impact on the Company's coaxial cable
business.
- - Unforeseen interruptions to the Company's business with its largest
customers, distributors and suppliers resulting from, but not limited to,
strikes, financial instabilities, computer malfunctions or inventory
excesses.
10
<PAGE>
Item 2. Properties
The Company's fixed assets include certain plants and warehouses and a
substantial quantity of machinery and equipment, most of which is general
purpose machinery and equipment using tools and fixtures and in many instances
having automatic control features and special adaptations. The Company's plants,
warehouses, machinery and equipment are in good operating condition, are well
maintained, and substantially all of its facilities are in regular use. The
Company considers the present level of fixed assets along with planned capital
expenditures as suitable and adequate for operations in the current business
environment. At December 31, 1999, the Company operated a total of 49 plants and
warehouses of which (a) the locations in the U.S. had approximately 1.9 million
square feet, of which .9 million square feet were leased; and (b) the locations
outside the U.S. had approximately 1.3 million square feet, of which .7 million
square feet were leased.
The Company believes that its facilities are suitable and adequate for the
business conducted therein and are being appropriately utilized for their
intended purposes. Utilization of the facilities varies based on demand for the
products. The Company continuously reviews its anticipated requirements for
facilities and, based on that review, may from time to time acquire or lease
additional facilities and/or dispose of existing facilities.
Item 3. Legal Proceedings
The Company and its subsidiaries have been named as defendants in several
legal actions in which various amounts are claimed arising from normal business
activities. Although the amount of any ultimate liability with respect to such
matters cannot be precisely determined, in the opinion of management, such
matters are not expected to have a material effect on the Company's financial
condition or results of operations.
Certain operations of the Company are subject to federal, state and local
environmental laws and regulations which govern the discharge of pollutants into
the air and water, as well as the handling and disposal of solid and hazardous
wastes. The Company believes that its operations are currently in substantial
compliance with all applicable environmental laws and regulations and that the
costs of continuing compliance will not have a material effect on the Company's
financial condition or results of operations.
Subsequent to the acquisition of Amphenol from Allied Signal Corporation
("Allied") in 1987, Amphenol and Allied have been named jointly and severally
liable as potentially responsible parties in relation to several environmental
cleanup sites. Amphenol and Allied have jointly consented to perform certain
investigations and remedial and monitoring activities at two sites and they have
been jointly ordered to perform work at another site. The responsibility for
costs incurred relating to these sites is apportioned between Amphenol and
Allied based on an agreement entered into in connection with the acquisition.
For sites covered by this agreement, to the extent that conditions or
circumstances occurred or existed at the time of or prior to the acquisition,
Allied is currently obligated to pay 80% of the costs up to $30 million and 100%
of the costs in excess of $30 million. At December 31, 1999, approximately $20
million of total costs have been incurred applicable to this agreement. Allied
representatives are presently working closely with the Company in addressing the
most significant potential environmental liabilities including the Sidney Center
landfill and the Richardson Hill landfill projects, as described below.
Owners and occupiers of sites containing hazardous substances, as well as
generators of hazardous substances, are subject to broad liability under various
federal and state environmental laws and regulations, including expenditures for
cleanup costs and damages arising out of past disposal activities. Such
liability in many cases may be imposed regardless of fault or the legality of
the original disposal activity. The Company is currently
11
<PAGE>
monitoring activities at its manufacturing site in Sidney, New York. Currently,
the Company is also voluntarily performing monitoring, investigation, design and
cleanup activities at two local, public off-site disposal sites previously
utilized by the Sidney facility and others. The Company is also performing
proposed remedial design activities and is currently negotiating with respect to
a third site. The Company and Allied have entered into an administrative consent
order with the United States Environmental Protection Agency (the "EPA") and are
presently determining necessary and appropriate remedial measures for one such
site (the "Richardson Hill" landfill) used by Amphenol and other companies,
which has been designated a "Superfund" site on the National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980. With respect to the second site, (the "Route 8" landfill), used
exclusively by Amphenol, the Company initiated a remediation program pursuant to
a Consent Order with the New York Department of Environmental Protection and is
continuing to monitor the results of those remediation efforts. In December
1995, the Company and Allied received a letter from the EPA demanding that the
Company and Allied accept responsibility for the investigation and cleanup of
the Sidney Center landfill, another Superfund Site. The Sidney Center landfill
was a municipal landfill site utilized by the Company's Sidney facility and
other local towns and businesses. The Company has acknowledged that it sent
general plant refuse but no hazardous waste to the Sidney Center landfill site.
In 1996, the Company and Allied received a unilateral order from the EPA
directing the Company and Allied to perform certain investigation, design and
cleanup activities at the Sidney Center landfill site. The Company and Allied
responded to the unilateral order by agreeing to undertake certain remedial
design activities. In 1997, the EPA filed a lawsuit against the Company and
Allied seeking to recover $2.7 million for past costs expended by the EPA in
connection with activities at the Sidney Center landfill site and seeking to
affix liability upon the Company and Allied for all additional costs to be
incurred in connection with all further investigations, design and cleanup
activities at the site. The Company joined four local municipalities as
co-defendants in the lawsuit. The EPA and the four municipalities entered into a
proposed settlement agreement which the Company and Allied has successfully
contested as being unfair and inequitable. A similar settlement proposal was not
offered to the Company and Allied. The Company and Allied intend to continue to
vigorously defend the lawsuit although remedial design work for the Sidney
Center landfill site has continued pursuant to the 1996 unilateral order. The
Company is also 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 1999, the Company incurred costs of approximately $1.0
million, net of indemnification payments received from Allied, in connection
with investigating, remediating and monitoring environmental conditions at all
of these facilities and sites. Amphenol expects such expenditures, net of
expected indemnification payments from Allied, to be less than $1.0 million in
2000.
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.
12
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders was held on May 26, 1999. The following
matters were submitted to and approved by the stockholders: (i) the election of
two directors, G. Robert Durham and George R. Roberts, each for a three year
term expiring in the year 2002 and (ii) ratification of Deloitte & Touche LLP as
independent accountants of the Company.
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, 1999.
Officers are elected to serve at the discretion of the Board of Directors in
accordance with the By-Laws of the Company. The By-Laws of the Company provide
that the Board of Directors shall elect the officers of the Company at its first
meeting held after the Annual Meeting of Stockholders of the Company. All
officers of the Company are elected to hold office until their successors are
chosen and qualified, or until their earlier resignation or removal.
Name Age Position
---- --- --------
Martin H. Loeffler 55 Chairman of the Board,
Chief Executive Officer and President
Edward G. Jepsen 56 Executive Vice President
and Chief Financial Officer
Timothy F. Cohane 47 Senior Vice President
Edward C. Wetmore 43 Secretary and General Counsel
Diana G. Reardon 40 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 been Chief Executive Officer since
May 1996 and President since July 1987.
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.
Timothy F. Cohane has been Senior Vice President of Amphenol since
December 1994 and a Vice President since 1991.
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 and Assistant Controller since June 1988.
13
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company effected the initial public offering of its Class A Common
Stock in November 1991. The Company's common stock has been listed on the New
York Stock Exchange since that time under the symbol "APH." The following table
sets forth on a per share basis the high and low closing prices for the common
stock for both 1999 and 1998 as reported on the New York Stock Exchange.
1999 1998
----------------- -------------------
High Low High Low
---- --- ---- ---
First Quarter 38 1/2 29 7/16 64 53 1/4
Second Quarter 40 3/8 34 1/2 61 5/8 39
Third Quarter 56 5/8 39 5/16 44 1/8 29 13/16
Fourth Quarter 71 1/2 45 3/4 35 1/16 27 1/2
As of February 29, 2000 there were 95 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.
Currently the Company is restricted from declaring and paying any cash
dividends on, or repurchasing the Company's common stock under certain covenants
contained in the Company's debt agreements.
Partnerships affiliated with Kohlberg Kravis Roberts & Co. L.P. ("KKR")
owned 63.9% of the Company's Class A Common Stock as of December 31, 1999.
14
<PAGE>
Item 6. Selected Financial Data
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net sales $ 1,010,603 $ 918,877 $ 884,348 $ 776,221 $ 783,233
Income before
extraordinary item 44,295 36,510 51,264 67,578 62,858
Extraordinary loss (8,674) (24,547)
Net income 35,621 36,510 26,717 67,578 62,858
Net income per common share-diluted:
Income before extraordinary item 2.42 2.03 1.83 1.45 1.33
Extraordinary loss (.48) (.88)
Net income 1.94 2.03 .95 1.45 1.33
Financial Position
Working capital $ 189,252 $ 163,508 $ 137,526 $ 136,864 $ 121,313
Total assets 836,376 807,401 737,154 710,662 689,924
Current portion of long-term debt 16,829 1,655 212 7,759 2,670
Long-term debt 745,658 952,469 937,277 219,484 195,195
Shareholders' equity (deficit) (81,166) (292,257) (343,125) 360,548 344,085
Weighted average shares
outstanding - diluted 18,332,008 17,942,397 28,002,977 46,720,900 47,412,015
</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, 1999 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>
Year Ended December 31,
- -------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales, excluding depreciation and amortization 65.7 65.5 64.7
Depreciation and amortization expense 4.0 3.8 3.6
Selling, general and administrative expense 14.4 14.4 14.1
------ ------ ------
Operating income 15.9 16.3 17.6
Interest expense (7.9) (8.8) (7.3)
Other expenses, net (.5) (.5) (.1)
Expenses relating to Merger and Recapitalization (.3)
------ ------ ------
Income before income taxes and extraordinary item 7.5 7.0 9.9
Provision for income taxes (3.1) (3.0) (4.1)
------ ------ ------
Net income before extraordinary item 4.4% 4.0% 5.8%
====== ====== ======
- -------------------------------------------------------------------------------------
</TABLE>
1999 Compared to 1998
Net sales were $1,010.6 million for the year ended December 31, 1999
compared to $918.9 million for 1998. Sales of interconnect products and
assemblies increased 7% compared to 1998 ($770.0 million in 1999 versus $718.1
million in 1998). Such increase is primarily attributable to increased sales of
products and interconnect systems for wireless, telecom and datacom
communications applications reflecting the continuing build and enhancements to
wireless communication infrastructure and mobile communication devices as well
as increasing Internet communication applications. The increase was partially
offset by a decline in sales of interconnect products for aerospace applications
reflecting lower builds of commercial aircraft, customer inventory reduction
programs and lower activity for the international Space Station program. Sales
of cable products increased 20% compared to 1998 ($240.6 million in 1999 versus
$200.8 million in 1998). Sales of coaxial cable for cable television increased
as cable operators continued to upgrade and expand their systems to offer
enhanced services and international markets for cable television strengthened,
especially in the economic recovering Asian markets.
Geographically, sales in the U.S. in 1999 increased approximately 4%
compared to 1998 ($519.5 million in 1999 versus $499.9 million in 1998);
international sales for 1999, including export sales, increased approximately
17% in U.S. dollars ($491.1 million in 1999 versus $419.0 million in 1998) and
increased approximately 19% in local currency compared to 1998. The
comparatively strong U.S. dollar in 1999 had the currency effect of decreasing
net sales by approximately $7.1 million when compared to foreign currency
translation rates in 1998.
The gross profit margin as a percentage of net sales (including
depreciation in cost of sales) remained relatively constant at approximately 32%
in 1999 compared to 1998.
Selling, general and administrative expenses as a percentage of sales
remained relatively constant at approximately 14% in 1999 compared to 1998.
Interest expense was $79.3 million for 1999 compared to $81.2 million for
1998. The decrease is primarily attributable to lower interest rates on the
Company's term loan facility.
Other expenses, net for 1999 was $5.3 million. See Note 9 to the Company's
Consolidated Financial Statements for details of the components of other
expenses, net.
The provision for income taxes for 1999 was at an effective rate of 41.9%
compared to an effective rate of 42.9% in 1998. The decrease is generally
attributable to non-deductible expenses (goodwill amortization) being a lower
percentage of pretax income.
1998 Compared to 1997
Net sales were $918.9 million for the year ended December 31, 1998
compared to $884.3 million for 1997. Sales of interconnect products and
assemblies increased 6% compared to 1997 ($718.1 million in 1998 versus $679.9
16
<PAGE>
million in 1997). Such increase is primarily due to increased sales of
interconnect products and assemblies for wireless communications, data
applications and smart card acceptor devices. Sales of interconnect products for
space, military and commercial aviation applications increased slightly and were
offset by a decline in sales for industrial applications. Sales of cable
products declined 2% compared to 1997 ($200.8 million in 1998 versus $204.5
million in 1997). Sales of coaxial cable for cable television increased in the
U.S. as cable operators began upgrading and expanding their systems to offer
enhanced services; however, the increase was offset by declines in sales in
international cable television markets, primarily Asia and Latin America, as a
result of generally weak economic conditions in those regions. Sales of flat
ribbon cable, primarily for data communication applications, were approximately
even with the prior year.
Geographically, sales in the U.S. in 1998 increased 8% compared to 1997
($499.9 million in 1998 versus $462.3 million in 1997); international sales for
1998, including export sales, decreased 1% in U.S. dollars ($419.0 million in
1998 versus $422.0 million in 1997) and increased approximately 1% in local
currency compared to 1997. The comparatively strong U.S. dollar in 1998 had the
currency effect of decreasing net sales by approximately $8.7 million when
compared to foreign currency translation rates in 1997.
The gross profit margin as a percentage of net sales (including
depreciation in cost of sales) decreased to 32% in 1998 from 33% in 1997. The
decrease is generally attributable to competitive pricing pressure on the
Company's coaxial cable products.
Selling, general and administrative expenses as a percentage of sales
remained relatively constant at approximately 14% in 1998 compared to 1997.
Interest expense was $81.2 million for 1998 compared to $64.7 million for
1997. The increase is due to increased debt levels resulting from the Merger and
Recapitalization in May 1997.
Other expenses, net for 1998 was $4.5 million, an increase of $3.4 million
from 1997. The 1997 period included a gain on the sale of marketable securities
of $3.9 million. See Note 9 to the Company's Consolidated Financial Statements
for details of the components of other expenses, net.
The provision for income taxes for 1998 was at an effective rate of 42.9%
compared to an effective rate of 41.2% in 1997. The increase is generally
attributable to non-deductible expenses (goodwill amortization) being a higher
percentage of pretax income.
Liquidity and Capital Resources
Cash provided by operating activities totaled $64.1 million, $53.2
million, and $86.3 million for 1999, 1998 and 1997, respectively. The increase
in cash from operating activities in 1999 compared to 1998 is primarily
attributable to an increase in net income adjusted for depreciation and
amortization charges and offset in part by a net increase in non-cash components
of working capital. In 1998, cash from operating activities was lower than 1997
primarily because of increased interest payments ($78.6 million in 1998 versus
$53.2 million in 1997) on borrowings resulting from the Merger and
Recapitalization and increased income taxes paid ($26.0 million in 1998 versus
$20.6 million in 1997).
Cash from operating activities was used for capital expenditures ($23.5
million, $26.3 million and $24.1 million in 1999, 1998 and 1997, respectively),
and acquisitions ($12.3 million, $32.7 million, and $4.0 million in 1999, 1998
and 1997, respectively).
In conjunction with the Merger and Recapitalization in 1997, the Company
entered into a $900 million bank agreement with a syndicate of financial
institutions (the "Bank Agreement"), comprised of a $150 million revolving
credit facility that expires in the year 2004 and a $750 million term loan
facility. The term loan facility includes a $350 million Tranche A maturing over
a 7 year period ending 2004, and a $375 million Tranche B with required
amortization in 2005 and 2006. The credit agreement is secured by pledges of
100% of the capital stock of the Company's direct domestic subsidiaries and 65%
of the capital stock of direct material foreign subsidiaries, and the agreement
requires the maintenance of certain interest coverage and leverage ratios, and
includes limitations with respect to, among other things, indebtedness and
restricted payments, including dividends on the Company's common stock. At
December 31, 1999 there were $599.5 million of borrowings outstanding under the
term loan facility. Availability under the revolving credit facility at December
31, 1999 was $134.6 million, after reduction of $8.3 million for outstanding
letters of credit.
The Company has entered into interest rate swap agreements that
effectively fixed the Company's interest cost on $450 million of borrowings
under the Bank Agreement to the extent that LIBOR interest rates remain below 7%
for $300 million of borrowings and below 8% for $150 million of borrowings.
The Company's EBITDA as defined in the Bank Agreement was $205.6 million
and $192.1 million for 1999 and 1998, 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 and interest on bank
borrowings and interest on its 9 7/8% Senior Subordinated Notes due 2007.
17
<PAGE>
In December 1999, the Company sold 2.75 million shares of common stock in
a public offering resulting in net proceeds of $181.8 million. $105.5 million of
such proceeds was used to redeem $96 million principal amount of Notes at a
price of 109.875% and the balance of the proceeds was used to pay down term debt
under the Bank Agreement. The redemption of Notes resulted in an extraordinary
loss for the early extinguishment of debt (consisting of a prepayment premium
and the write off of related deferred debt issuance costs) of $13.6 million less
tax benefits of $4.9 million.
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 2000 will be approximately $35 million. The
Company's required debt amortization in 2000 is $16.8 million; the Company's
required cash interest payments for 2000, at current interest rates, are
estimated at approximately $58 million. The Company may also use cash to fund
part or all of the cost of future acquisitions.
Environmental Matters
Subsequent to the acquisition of Amphenol Corporation in 1987, Amphenol
and Allied have been named jointly and severally liable as potentially
responsible parties in relation to several environmental cleanup sites. Amphenol
and Allied have jointly consented to perform certain investigations and remedial
and monitoring activities at two sites and they have been jointly ordered to
perform work at another site. The responsibility for costs incurred relating to
these sites is apportioned between Amphenol and Allied based on an agreement
entered into in connection with the acquisition. For sites covered by this
agreement, to the extent that conditions or circumstances occurred or existed at
the time of or prior to the acquisition, Allied is currently obligated to pay
80% of the costs up to $30 million and 100% of the costs in excess of $30
million. At December 31, 1999, approximately $20 million of the total costs have
been incurred applicable to this agreement. Management does not believe that the
costs associated with resolution of these or any other environmental matters
will have a material adverse effect on the Company's financial condition or
results of operations.
Inflation and Costs
The cost of the Company's products is influenced by the cost of a wide
variety of raw materials, including precious metals such as gold and silver used
in plating; aluminum, copper, brass and steel used for contacts, shells and
cable; and plastic materials used in molding connector bodies, inserts and
cable. In general, increases in the cost of raw materials, labor and services
have been offset by price increases, productivity improvements and cost saving
programs.
Risk Management
The Company has to a significant degree mitigated its exposure to currency
risk in its business operations by manufacturing and procuring its products in
the same country or region in which the products are sold so that costs reflect
local economic conditions. In other cases involving U.S. export sales, raw
materials are a significant component of product costs for the majority of such
sales and raw material costs are generally dollar based on a worldwide scale,
such as basic metals and petroleum derived materials.
Recent Accounting Change
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that an entity
recognize all derivatives as either assets or liabilities in the Statement of
Financial Position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and its resulting designation. The
Company is in the process of evaluating the effect this new standard will have
on the Company's financial statements. The Company is required to adopt FAS 133,
as amended by FAS 137, beginning January 1, 2001.
Information Systems and the Year 2000
The Year 2000 issue was primarily the result of computer programs using a
two digit format, as opposed to four digits, to indicate the year. Such computer
systems would be unable to interpret dates beyond the year 1999, which could
cause system failures or other computer errors, leading to a disruption in the
operation of such systems. In 1996, the Company began a systematic review of all
of its business information systems to ensure that the systems now in use
worldwide would be Year 2000 compliant before the turn of the century. The
Company established a Year 2000 Program Management Group to provide overall
guidance and direction for this compliance mission. Communications were
initiated to all of the Company's business units focusing on the critical nature
of this project and the Program Management Group continued to monitor the
progress and status of each business unit. The Program Management Group focused
its efforts on four main areas: (1) information systems software and hardware;
(2) non-information technology systems; (3) facilities equipment; and (4)
customer and vendor relationships. The Company's Year 2000 conversion project
was completed with no significant impact on business operations.
Based on assessment efforts to date
18
<PAGE>
and since the Company experienced no major Year 2000 related issues during the
transition, the Company does not believe that the Year 2000 issue will have a
material adverse effect on its financial condition or results of operations. The
Company operates a number of business units worldwide and has a large supplier
base and believes that this will mitigate any adverse impact. The Company's
beliefs and expectations, however, are based on certain assumptions and
expectations that ultimately may prove to be inaccurate. Potential sources of
risk include: (a) the inability of principal suppliers to be Year 2000 ready,
which could result in delays in product deliveries from such suppliers, (b)
disruption of the product distribution channel, including ports and
transportation vendors and (c) the general breakdown of necessary infrastructure
such as electricity supply. The Company has developed contingency plans to
reduce the impact of transactions with non-compliant suppliers and other
parties. Although there can be no assurance that multiple business disruptions
caused by technology failures can be adequately anticipated, the Company has
identified various alternatives to minimize the potential risk to its business
operations.
The Company estimates the cost for its Year 2000 compliance efforts to be
approximately $3.0 million, including the cost of new systems and upgrades some
of which were capitalized. The cost was funded through operating cash flows. The
Company's aggregate cost estimate does not include time and costs incurred by
the Company as a result of the failure of any third parties, including
suppliers, to become Year 2000 ready or costs to implement any contingency
plans. Such costs are not anticipated to have a material impact on the Company's
financial position, results of operations or cash flows.
Euro Currency Conversion
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "euro"). The transition period for the
introduction of the euro began on January 1, 1999. Beginning January 1, 2002,
the participating countries will issue new euro-denominated bills and coins for
use in cash transactions. No later than July 1, 2002, the participating
countries will withdraw all bills and coins denominated in the legacy
currencies, so that the legacy currencies will no longer be legal tender for any
transactions, making the conversion to the euro complete.
The company is addressing the issues involved with the introduction of the
euro. Based on progress to date, the company believes that the use of the euro
will not have a significant impact on the manner in which it conducts its
business. Accordingly, conversion to the euro is not expected to have a material
effect on the company's consolidated financial position, consolidated results of
operations, or liquidity.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The Company, in the normal course of doing business, is exposed to the
risks associated with foreign currency exchange rates and changes in interest
rates.
Foreign Currency Exchange Rate Risk
The Company conducts business in several major international currencies
through its worldwide operations, and as a result is subject to foreign exchange
exposures due to changes in exchange rates of the various currencies. Changes in
exchange rates can positively or negatively effect the Company's sales, gross
margins and retained earnings. The Company attempts to minimize currency
exposure risk by producing its products in the same country or region in which
the products are sold and thereby generating revenues and incurring expenses in
the same currency and by managing its working capital; although there can be no
assurance that this approach will be successful, especially in the event of a
significant and sudden decline in the value of any of the international
currencies of the Company's worldwide operations. In addition, the Company
periodically enters into foreign exchange contracts to hedge its transaction
exposures. The Company does not engage in purchasing forward exchange contracts
for speculative purposes.
Interest Rate Risk
The Company is subject to market risk from exposure to changes in interest
rates based on its financing activities. The Company utilizes interest rate swap
agreements to manage and mitigate its exposure to changes in interest rates. At
December 31, 1999, the Company had interest rate protection in the form of such
swaps that effectively fixed the Company's LIBOR interest rate on $450 million
of floating rate bank debt at 5.76%. At December 31, 1999, the three month LIBOR
rate was 6.00%. Such swap agreements are in effect to the extent that LIBOR
remains below 7% for $300 million of debt and remains below 8% for an additional
$150 million of debt. These swap agreements expire in July 2002. A 10% change in
the LIBOR interest rate at December 31, 1999 would have the effect of increasing
or decreasing interest expense by approximately $1.0 million. However, if the
LIBOR interest rate increased above 7% (a 17% increase from the LIBOR interest
rate at December 31, 1999), further increases above 7% would have a more
significant effect in increasing interest expense. The Company does not expect
changes in interest rates to have a material effect on income or cash flows in
2000, although there can be no assurances that interest rates will not
significantly change.
19
<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. 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 sheets of Amphenol
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in shareholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Amphenol Corporation and
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
January 18, 2000
(March 14, 2000, as to Note 13)
20
<PAGE>
Consolidated Statement of Income
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,010,603 $ 918,877 $ 884,348
Costs and expenses:
Cost of sales, excluding depreciation and amortization 663,978 601,930 572,092
Depreciation and amortization expense 27,673 23,553 20,428
Selling, general and administrative expense 145,852 131,966 125,064
Amortization of goodwill 12,371 11,701 11,316
------------ ------------ ------------
Operating income 160,729 149,727 155,448
Interest expense (79,297) (81,199) (64,713)
Expenses relating to Merger and Recapitalization (Note 2) (2,500)
Other expenses, net (5,262) (4,545) (1,061)
------------ ------------ ------------
Income before income taxes and extraordinary item 76,170 63,983 87,174
Provision for income taxes (31,875) (27,473) (35,910)
------------ ------------ ------------
Income before extraordinary item 44,295 36,510 51,264
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes (Notes 2 and 3) (8,674) (24,547)
------------ ------------ ------------
Net income $ 35,621 $ 36,510 $ 26,717
============ ============ ============
Net income per common share - Basic:
Income before extraordinary item $ 2.46 $ 2.07 $ 1.84
Extraordinary loss (.48) (.88)
------------ ------------ ------------
Net income $ 1.98 $ 2.07 $ .96
============ ============ ============
Average common shares outstanding 18,029,778 17,663,212 27,806,260
Net income per common share - Diluted:
Income before extraordinary item $ 2.42 $ 2.03 $ 1.83
Extraordinary loss (.48) (.88)
------------ ------------ ------------
Net income $ 1.94 $ 2.03 $ .95
============ ============ ============
Average common shares outstanding 18,332,008 17,942,397 28,002,977
</TABLE>
- -----------------------------------------------------------
See accompanying notes to consolidated financial statements.
21
<PAGE>
Consolidated Balance Sheet
(dollars in thousands, except per share data)
December 31,
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Assets
Current Assets:
Cash and short-term cash investments $ 12,898 $ 3,095
Accounts receivable, less allowance for
doubtful accounts of $2,232 and $1,832 111,711 83,065
Inventories:
Raw materials and supplies 28,022 24,806
Work in process 115,231 114,035
Finished goods 46,180 45,583
--------- ---------
189,433 184,424
Prepaid expenses and other assets 21,137 17,089
--------- ---------
Total current assets 335,179 287,673
--------- ---------
Land and depreciable assets:
Land 10,582 10,782
Buildings 69,493 68,426
Machinery and equipment 246,798 237,618
--------- ---------
326,873 316,826
Less accumulated depreciation (206,923) (190,047)
--------- ---------
119,950 126,779
Deferred debt issuance costs 10,267 16,783
Excess of cost over fair value of net assets acquired 360,999 360,265
Other assets 9,981 15,901
--------- ---------
$ 836,376 $ 807,401
========= =========
Liabilities & Shareholders' Deficit
Current Liabilities:
Accounts payable $ 71,495 $ 67,885
Accrued interest 9,779 11,306
Accrued salaries, wages and employee benefits 14,604 14,385
Other accrued expenses 33,220 28,934
Current portion of long-term debt 16,829 1,655
--------- ---------
Total current liabilities 145,927 124,165
--------- ---------
Long-term debt 745,658 952,469
Deferred taxes and other liabilities 25,957 23,024
Commitments and contingent liabilities
(Notes 3, 7 and 10)
Shareholders' Deficit:
Class A Common Stock, $.001 par value;
40,000,000 shares authorized;
20,616,220 and 17,862,328 shares
outstanding at December 31, 1999
and 1998, respectively 21 18
Additional paid-in deficit (318,641) (499,928)
Accumulated earnings 250,482 214,861
Accumulated other comprehensive loss (Note 6) (13,028) (7,208)
--------- ---------
Total shareholders' deficit (81,166) (292,257)
--------- ---------
$ 836,376 $ 807,401
========= =========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Paid-In Comprehensive Treasury Shareholders'
Common Capital Comprehensive Accumulated Income (Loss) Stock Equity
Stock (Deficit) Income Earnings (Note 6) at Cost (Deficit)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $47 $265,425 $151,634 $(3,887) $(52,671) $360,548
Comprehensive income:
Net income [ $26,717 ] 26,717 26,717
---------
Other comprehensive income
(loss), net of tax:
Reclassification adjustment
for gain on securities
realized in net income (3,687) (3,687)
Translation adjustments (8,147) (8,147)
Minimum pension liability
adjustment 5,809 5,809
---------
Other comprehensive loss (6,025) (6,025)
---------
Comprehensive income [ $20,692 ]
=========
Stock subscription proceeds 532 532
Sale of 13,116,955 shares
of common stock (Note 2) 13 341,028 341,041
Purchase of 40,325,240 shares
of common stock (Note 2) (40) (1,048,450) (1,048,490)
Fees and other expenses
related to the Merger and
Recapitalization (Note 2) (17,644) (17,644)
Retirement of Treasury Stock (2) (52,669) 52,671
Amortization of deferred
compensation 186 186
Stock options exercised 10 10
--- ----------- -------- -------- -------- ----------
Balance December 31, 1997 18 (511,582) 178,351 (9,912) (343,125)
Comprehensive income:
Net income [ $36,510 ] 36,510 36,510
Other comprehensive income,
net of tax:
Translation adjustments 2,704 2,704 2,704
---------
Comprehensive income [ $39,214 ]
=========
Stock subscription proceeds 25 25
Deferred compensation 180 180
Stock issued in connection
with acquisition 11,449 11,449
--- ----------- -------- -------- ----------
Balance December 31, 1998 18 (499,928) 214,861 (7,208) (292,257)
Comprehensive income:
Net income [ $35,621 ] 35,621 35,621
Other comprehensive loss,
net of tax:
Translation adjustments (5,820) (5,820) (5,820)
---------
Comprehensive income [ $29,801 ]
=========
Deferred compensation 180 180
Sale of 2,750,000 shares of
common stock 3 181,107 181,110
--- ----------- -------- -------- ----------
Balance December 31, 1999 $21 $ (318,641) $250,482 $(13,028) $ (81,166)
=== =========== ======== ======== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
<PAGE>
Consolidated Statement of Cash Flow
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 35,621 $ 36,510 $ 26,717
Adjustments for cash from operations:
Depreciation and amortization 40,044 35,254 31,744
Amortization of deferred debt issuance costs 2,733 2,749 2,638
Net extraordinary loss on early extinguishment of debt 8,674 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 (27,793) (2,926) (18,261)
Inventory (9,795) (9,229) (17,700)
Prepaid expenses and other assets (2,856) (1,788) (2,479)
Accounts payable 2,646 (257) 15,653
Accrued liabilities 12,792 (4,251) 18,938
Accrued interest (2,262) (142) 8,944
Accrued pension and post employment benefits 1,113 (1,102) (4,717)
Deferred taxes and other liabilities 2,887 57 2,607
Other 291 (1,647) (952)
----------- ----------- -----------
Cash flow provided by operations 64,095 53,228 86,262
----------- ----------- -----------
Cash flow from investing activities:
Additions to property, plant and equipment (23,464) (26,340) (24,059)
Investments in acquisitions and joint ventures (12,274) (32,663) (4,000)
Proceeds from the sale of marketable securities 7,351
----------- ----------- -----------
Cash flow used by investing activities (35,738) (59,003) (20,708)
----------- ----------- -----------
Cash flow from financing activities:
Net change in borrowings under revolving credit facilities (14,328) 9,157 (20,461)
Repurchase of senior notes and subordinated debt (105,480) (212,479)
Payment of fees and other expenses related to
Merger and Recapitalization (59,436)
Borrowings under Bank Agreement 750,000
Net change in receivables sold 10,000
Decrease in borrowings under Bank Agreement (80,500) (5,000) (65,000)
Proceeds from the issuance of senior subordinated notes 240,000
Purchase of common stock (1,048,490)
Sale of common stock 181,754 341,041
----------- ----------- -----------
Cash flow provided by (used by) financing activities (18,554) 4,157 (64,825)
----------- ----------- -----------
Net change in cash and short-term cash investments 9,803 (1,618) 729
Cash and short-term cash investments balance, beginning of period 3,095 4,713 3,984
----------- ----------- -----------
Cash and short-term cash investments balance, end of period $ 12,898 $ 3,095 $ 4,713
=========== =========== ===========
Cash paid during the year for:
Interest $ 78,091 $ 78,634 $ 53,237
Income taxes paid, net of refunds 20,285 26,024 20,623
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
24
<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 two business
segments which consist of manufacturing and selling interconnect products and
assemblies, and manufacturing and selling cable products.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany transactions have been eliminated in
consolidation.
Cash and Short-Term Cash Investments
Cash and short-term cash investments consist of cash and liquid
investments with an original maturity of less than three months.
Inventories
Inventories are stated at the lower of standard cost, which approximates
average cost, or market. The principal components of cost included in
inventories are materials, direct labor and manufacturing overhead.
Depreciable Assets
Property, plant and equipment are carried at cost. Depreciation and
amortization of property, plant and equipment are provided on a straight-line
basis over the respective asset lives determined on a composite basis by asset
group or on a specific item basis using the estimated useful lives of such
assets which range from 3 to 12 years for machinery and equipment and 20 to 40
years for buildings. It is the Company's policy to periodically review fixed
asset lives.
Deferred Debt Issuance Costs
Deferred debt issuance costs are being amortized on the interest method
over the term of the related debt and such amortization is included in interest
expense.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired (goodwill)
is being amortized on the straight-line basis over a period of 40 years.
Accumulated amortization was $121,045 and $108,674 at December 31, 1999 and
1998, respectively. Management continually reassesses the appropriateness of
both the carrying value and remaining life of goodwill. Such reassessments are
based on forecasting cash flows, on an undiscounted basis, and other factors. In
the event an impairment is indicated, the amount of the impairment would be
based on estimated discounted cash flows.
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of products.
Sales and related cost of sales under long-term contracts with commercial
customers and the U.S. Government are recognized as units are delivered or
services provided.
Retirement Pension Plans
Costs for retirement pension plans include current service costs and
amortization of prior service costs over periods of up to thirty years. It is
the Company's policy to fund current pension costs taking into consideration
minimum funding requirements and maximum tax deductible limitations. The expense
of retiree medical benefit programs is recognized during the employees' service
with the Company as well as amortization of a transition obligation recognized
on adoption of the accounting principle.
25
<PAGE>
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 $18,467, $17,669 and
$15,313, excluding customer sponsored programs representing expenditures of
$286, $523 and $214, for the years 1999, 1998 and 1997, respectively.
Environmental Obligations
The Company recognizes the potential cost for environmental remediation
activities when assessments are made, remedial efforts are probable and related
amounts can be reasonably estimated; potential insurance reimbursements are not
recorded. The Company regularly assesses its environmental liabilities through
reviews of contractual commitments, site assessments, feasibility studies and
formal remedial design and action plans.
Net Income per Common Share
Basic income per common share is based on the net income for the period
divided by the weighted average common shares outstanding. Diluted income per
common share assumes the exercise of outstanding, dilutive stock options using
the treasury stock method.
Derivative Financial Instruments
Derivative financial instruments, which are periodically used by the
Company in the management of its interest rate and foreign currency exposures,
are accounted for on an accrual basis. Income and expense are recorded in the
same category as that arising from the related asset or liability. For example,
amounts to be paid or received under interest rate swap agreements are
recognized as interest income or expense in the periods in which they accrue.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that an entity
recognize all derivatives as either assets or liabilities in the Statement of
Financial Position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and its resulting designation. The
Company is in the process of evaluating the effect this new standard will have
on the Company's financial statements. The Company is required to adopt FAS 133,
as amended by FAS 137, beginning January 1, 2001.
Note 2 - Merger and Recapitalization
On May 19, 1997, the Company merged with NXS Acquisition Corp., a wholly
owned subsidiary of KKR 1996 Fund L.P., KKR Partners II, L.P., and NXS
Associates, L.P., limited partnerships formed at the direction of Kohlberg
Kravis Roberts & Co. L.P. ("KKR"). The Merger had the effect of affiliates of
KKR investing $341,041 in exchange for 13,116,955 shares, or 75% of the
Company's common stock. Such equity proceeds , along with $240,000 of proceeds
from the sale of 9 7/8% Senior Subordinated Notes due 2007 and borrowings of
$750,000 under a $900,000 bank loan agreement ("Bank Agreement") were used to
repurchase 40,325,240 shares of the Company's common stock for $1,048,490,
purchase all of the Company's outstanding 10.45% Senior Notes and substantially
all of the Company's 12 3/4% Subordinated Debentures for $211,153 and pay fees
and expenses of $59,436, including $18,000 paid to KKR and $39,292 relating to
the issuance of new debt.
The Merger and related transactions have been recorded as a
recapitalization ("Merger and Recapitalization"). Expenses of $17,644 related to
the repurchase of the Company's common stock have been reflected as a reduction
of additional paid-in capital; other expenses of approximately $2,500, primarily
relating to the buyout of certain stock options, are reflected in the
accompanying Consolidated Statement of Income. In conjunction with the Merger
and Recapitalization, the Company recorded the costs associated with early
extinguishment of debt of $12,845, net of tax, as an extraordinary item in the
accompanying Consolidated Statement of Income. Such costs included the premium
associated with redemption of the Company's 10.45% Senior Notes and 12 3/4%
Subordinated Debentures and the write off of unamortized deferred debt issuance
costs. Supplemental earnings per share for 1997 assuming the Merger and
Recapitalization was completed at January 1, 1997, and excluding the impact of
related non-recurring expenses, is $1.98 per share.
26
<PAGE>
Note 3 - Long-Term Debt
Long-term debt consists of the following:
December 31,
- --------------------------------------------------------------------------------
Interest Rate at
December 31, 1999 Maturity 1999 1998
- --------------------------------------------------------------------------------
Bank Agreement:
Term loan 7.60% 2000-2006 $599,500 $680,000
Revolving credit facility 8.64% 2004 7,100 19,500
Senior subordinated notes 9.875% 2007 144,000 240,000
Notes payable to foreign
banks and other debt 1.0%-15.0% 2000-2004 11,887 14,624
-------- --------
762,487 954,124
Less current portion 16,829 1,655
-------- --------
Total long-term debt $745,658 $952,469
======== ========
In conjunction with the Merger and Recapitalization, the Company entered
into a $900,000 Bank Agreement with a syndicate of financial institutions,
comprised of a $150,000 revolving credit facility that expires in the year 2004
and a $750,000 term loan facility - $350,000 (Tranche A) maturing over a
seven-year period ending 2004, $200,000 (Tranche B) maturing in 2005 and
$200,000 (Tranche C) maturing in 2006. In October 1997, the Company negotiated a
significant amendment and restatement to the term loan under the Bank Agreement.
The amendment extinguished the Tranche B and C indebtedness with borrowings
under a new $375,000 Term Loan Tranche B with required amortization in 2005 and
2006. In conjunction with the amendment and restatement, the Company incurred an
extraordinary loss, net of tax, of $11,702 for the write off of unamortized
deferred debt issuance costs. Availability under the revolving credit facility
at December 31, 1999 was $134,581, after reduction of $8,319 for outstanding
letters of credit.
At December 31, 1999, interest under the Bank Agreement generally accrues
at .25% to .75% over prime or 1.50% to 2.0% over LIBOR at the Company's option.
The Company also pays certain annual agency and commitment fees. At December 31,
1999, the Company had interest rate protection in the form of swap agreements
that effectively fixed the Company's LIBOR interest rate on $450,000 of floating
rate bank debt at 5.76%. Such agreements are in effect to the extent that LIBOR
remains below 7% for $300,000 of debt and remains below 8% for an additional
$150,000 of debt. These agreements expire in July 2002.
The Bank Agreement is secured by a first priority pledge of 100% of the
capital stock of the Company's direct domestic subsidiaries and 65% of the
capital stock of direct material foreign subsidiaries, as defined in the Bank
Agreement. The Bank Agreement also requires that the Company satisfy certain
financial covenants including interest coverage and leverage ratio tests, and
includes limitations with respect to, among other things, (i) incurring debt,
(ii) creating or incurring liens, (iii) making other investments, (iv) acquiring
or disposing of assets, (v) capital expenditures, and (vi) restricted payments,
including dividends on the Company's common stock.
The 9 7/8% Senior Subordinated Notes due 2007 are general unsecured
obligations of the Company. The Notes are subject to redemption at the option of
the Company, in whole or in part, beginning in 2002 at 104.938% and declining to
100% by 2005. In December 1999, the Company funded the redemption of $96,000
principal amount of Notes at a price of 109.875% plus accrued interest. Such
funding was from a portion of the proceeds received on issuance of 2.75 million
shares of common stock. The redemption resulted in an extraordinary loss for the
early extinguishment of debt (consisting of a prepayment premium and the write
off of related deferred debt issuance costs) of $13,553, less tax benefits of
$4,879.
The maturity of the Company's long-term debt over each of the next five
years ending December 31, is as follows: 2000 - $16,829; 2001 - $48,701; 2002 -
$61,504; 2003 - $82,026; and 2004 - $119,561.
27
<PAGE>
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,
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Income before taxes and extraordinary item:
United States $ 18,508 $ 18,725 $ 45,354
Foreign 57,662 45,258 41,820
-------- -------- --------
$ 76,170 $ 63,983 $ 87,174
======== ======== ========
Current provision:
United States $ 13,671 $ 10,002 $ 21,857
Foreign 18,353 17,651 12,611
-------- -------- --------
32,024 27,653 34,468
-------- -------- --------
Deferred provision:
United States $ (260) $ 745 $ 1,407
Foreign 111 (925) 35
-------- -------- --------
(149) (180) 1,442
-------- -------- --------
Total provision for income taxes $ 31,875 $ 27,473 $ 35,910
======== ======== ========
At December 31, 1999, the Company had $13,829 of foreign tax loss
carryforwards, of which $1,691 expire at various dates through 2003 and the
balance can be carried forward indefinitely, and $612 of tax credit
carryforwards, of which $450 expire between the years 2000 and 2011 and the
balance can be carried forward indefinitely. Accrued income tax liabilities of
$1,572 and $5,667 at December 31, 1999 and 1998, respectively, are included in
other accrued expenses in the Consolidated Balance Sheet.
Differences between the U.S. statutory federal tax rate and the Company's
effective income tax rate are analyzed below:
Year Ended December 31,
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
U.S. statutory federal tax rate 35.0% 35.0% 35.0%
State and local taxes 1.7 2.1 1.4
Non-deductible purchase accounting differences 5.7 6.4 4.5
Foreign tax expense in excess of U.S. statutory rate 2.1 2.8 .9
Valuation allowance provided (utilized) (2.9) (.9) .1
Other .3 (2.5) (.7)
---- ---- ----
Effective tax rate 41.9% 42.9% 41.2%
==== ==== ====
The Company's deferred tax assets and liabilities, excluding a valuation
allowance, were comprised of the following:
December 31,
----------------------
1999 1998
------- -------
Deferred tax assets:
Accrued liabilities and reserves $ 4,766 $ 4,415
Operating loss carryforwards 4,882 7,298
Tax credit carryforwards 612 450
Employee benefits 2,152 2,221
------- -------
$12,412 $14,384
======= =======
Deferred tax liabilities:
Depreciation $ 6,290 $ 7,399
Prepaid pension costs 7,128 6,103
------- -------
$13,418 $13,502
======= =======
28
<PAGE>
A valuation allowance of $3,723 and $5,919 at December 31, 1999 and 1998,
respectively, has been recorded which relates primarily to foreign net operating
loss carryforwards and tax credits. The net change in the valuation allowance
for deferred tax assets was a reduction of $2,196 in 1999 and a decrease of $549
in 1998. In 1999 the net change in the valuation allowance was related to the
utilization of foreign net operating loss carryforwards and in 1998 to the
expiration of tax credits. 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 have a defined benefit plan
covering substantially all U.S. employees. Plan benefits are generally based on
years of service and compensation. The plan is noncontributory, except for
certain salaried employees. Certain foreign subsidiaries have defined benefit
plans covering their employees. Certain U.S. employees not covered by the
defined benefit plan are covered by defined contribution plans. The following is
a summary of the Company's defined benefit plans funded status as of the most
recent actuarial valuations (December 31, 1999 and 1998).
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
Accumulated Assets Accumulated Assets
Benefits Exceed Benefits Exceed
Exceed Accumulated Exceed Accumulated
Assets Benefits Assets Benefits
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 25,302 $193,634 $ 21,540 $178,982
Service cost 881 4,385 768 3,697
Interest cost 1,429 12,913 1,450 12,692
Plan participants' contributions 296 272
Plan amendments 4,797
Actuarial (gain) loss 827 (8,410) 762 7,955
Foreign exchange (3,551) (159) 1,717 (223)
Benefits paid (914) (13,701) (935) (14,538)
-------- -------- -------- --------
Benefit obligation at end of year 23,974 188,958 25,302 193,634
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 222,219 204,679
Actual return on plan assets 29,849 32,065
Employer contribution 92 61
Plan participants' contributions 296 272
Foreign exchange (208) (320)
Benefits paid (13,701) (14,538)
-------- -------- -------- --------
Fair value of plan assets at end of year -- 238,547 -- 222,219
-------- -------- -------- --------
Funded status (23,974) 49,589 (25,302) 28,585
Unrecognized net actuarial (gain) loss 3,419 (29,592) 1,075 (9,236)
Unrecognized prior service cost 8,983 10,076
Unrecognized transition obligation net 124 (2,276) 167 (2,540)
-------- -------- -------- --------
(Accrued) prepaid benefit cost $(20,431) $ 26,704 $(24,060) $ 26,885
======== ======== ======== ========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Components of net pension cost:
Service cost $ 5,266 $ 4,465 $ 3,969
Interest cost 14,342 14,142 13,761
Expected return on plan assets (19,110) (18,038) (35,321)
Net amortization and deferral of actuarial losses 1,376 983 19,417
-------- -------- --------
Net pension cost $ 1,874 $ 1,552 $ 1,826
======== ======== ========
- ---------------------------------------------------------------------------------------
</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 7.5% (7.0% in 1998 and 7.25% in 1997) and 3.5% (3.0% in
1998 and 3.25% in 1997), respectively. The expected long-term rate of return on
assets was 10.5%. Plan assets consist primarily of U.S. equity and debt
securities. The Company has also adopted an unfunded Supplemental Employee
Retirement Plan ("SERP") which provides for the payment of the portion of annual
pension which cannot be paid from the retirement plan as a result of regulatory
limitations on average compensation for purposes of the benefit computation. The
largest non-U.S. pension plan, in accordance with local custom, is unfunded and
had an accumulated benefit obligation of approximately $19,277 and $21,139 at
December 31, 1999 and 1998, respectively. Such obligation is included in the
Consolidated Balance Sheet and the tables above. Pension plans of certain of the
Company's other international subsidiaries generally do not determine the
actuarial value of accumulated benefits and the value of net assets on the basis
shown above. The plans, in accordance with local practices, are generally
unfunded. The vested benefit obligations of these plans are not significant.
The Company maintains self insurance programs for that portion of its
health care and workers compensation costs not covered by insurance. The Company
also provides certain health care and life insurance benefits to certain
eligible retirees through postretirement benefit programs. The Company's share
of the cost of such plans for most participants is fixed, and any increase in
the cost of such plans will be the responsibility of the retirees. The Company
funds the benefit costs for such plans on a pay-as-you-go basis. Since the
Company's obligation for postretirement medical plans is fixed and since the
accumulated postretirement benefit obligation ("APBO") and the net
postretirement benefit expense are not material in relation to the Company's
financial condition or results of operations, management believes any change in
medical costs from that estimated will not have a significant impact on the
Company. The discount rates used in determining the APBO at December 31, 1999
and 1998 were 7.5% and 7.0%, respectively.
30
<PAGE>
Summary information on the Company's postretirement medical plans as of
December 31, 1999 and 1998 is as follows:
December 31,
----------------------
1999 1998
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year $ 12,665 $ 13,027
Service cost 68 72
Interest cost 901 935
Paid benefits and expenses (2,093) (2,616)
Actuarial gain (loss) 939 1,247
-------- --------
Benefit obligation at end of year $ 12,480 $ 12,665
======== ========
Funded status $(12,480) $(12,665)
Unrecognized net actuarial loss 8,897 9,111
Unrecognized transition obligation 807 869
-------- --------
Accrued benefit cost $ (2,776) $ (2,685)
======== ========
Year ended December 31,
------------------------
1999 1998 1997
------ ------ ------
Components of net postretirement benefit cost:
Service cost $ 68 $ 72 $ 65
Interest cost 901 935 963
Amortization of transition obligation 62 62 62
Net amortization and deferral of actuarial losses 1,107 961 733
------ ------ ------
Net postretirement benefit cost $2,138 $2,030 $1,823
====== ====== ======
Note 6 - Shareholders' Equity (Deficit)
The Company had a stock option plan which authorized the granting of stock
options by the Board of Directors for up to a maximum of 1,000,000 shares of
Class A Common Stock (the "Old Plan"). In conjunction with the Merger and
Recapitalization, all outstanding options under the Old Plan were cancelled and
the holders of options with an exercise price less than $26.00 per share were
paid the difference between $26.00 and the exercise price. Such amount for all
of the then outstanding options was approximately $2.2 million. In May 1997, the
Company adopted the 1997 Option Plan (the "New Plan") which authorizes the
granting of stock options by a committee of the Board of Directors for up to a
maximum of 1,200,000 shares of common stock. In May 1998, the New Plan was
amended to increase the number of authorized shares to a maximum of 1,750,000.
Options granted under the New Plan vest ratably over a period of five years from
the date of grant and are exercisable over a period of ten years from the date
of grant. In addition, shares issued in conjunction with the exercise of stock
options under the New Plan are generally subject to a Management Stockholders'
Agreement which, among other things, places restrictions on the sale or transfer
of such shares.
Stock option plan activity for 1997, 1998, and 1999 was as follows:
31
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Old Plan New Plan Average Price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1996 423,438 $ 20.58
Options granted 1,190,176 26.12
Options exercised (14,001) 13.15
Options cancelled (409,437) (11,750) 20.47
---------- ---------
Options outstanding at December 31, 1997 -- 1,178,426 26.12
Options granted -- 240,460 50.82
Options cancelled -- (148,450) 51.36
---------- ---------
Options outstanding at December 31, 1998 -- 1,270,436 27.85
Options granted -- 241,400 38.48
Options cancelled -- (53,306) 29.98
---------- ---------
Options outstanding at December 31, 1999 -- 1,458,530 $ 29.53
========== =========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -----------------------
Average Remaining Average
Exercise Price Shares Price Term Shares Price
-------------- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C>
$26.00 1,105,826 $26.00 7.38 448,571 $26.00
30.00-35.00 61,104 32.09 8.83 11,976 32.00
36.00-40.00 229,900 38.27 9.23 4,000 39.93
55.00-60.00 61,700 57.79 8.39 11,340 58.00
</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:
1999 1998 1997
------- ------- -------
Income before
extraordinary item As reported $44,295 $36,510 $51,264
Pro forma 42,261 34,075 49,704
Income per share
before extraordinary item - Basic As reported $2.46 $2.07 $1.84
Pro forma 2.34 1.93 1.79
Income per share
before extraordinary item - Diluted As reported $2.42 $2.03 $1.83
Pro forma 2.31 1.90 1.78
Net income As reported $35,621 $36,510 $26,717
Pro forma 33,587 34,075 25,157
Net income per share - Basic As reported $1.98 $2.07 $ .96
Pro forma 1.86 1.93 .90
Net income per share - Diluted As reported $1.94 $2.03 $ .95
Pro forma 1.83 1.90 .90
32
<PAGE>
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:
1999 1998 1997
---- ---- ----
Risk free interest rate 5.6% 5.1% 5.4%
Expected life 4 years 4 years 4 years
Expected volatility 40.0% 30.0% 30.0%
Expected dividend yield -- -- --
The weighted-average fair values of options granted during 1999, 1998 and
1997 were $15.01, $16.69 and $8.36, respectively.
Activity in the Company's Accumulated Other Comprehensive Income accounts
for 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Cumulative
Cumulative Minimum Accumulated
Cumulative Appreciation Pension Other
Translation in Marketable Liability Comprehensive
Adjustment Securities Adjustment Income
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Balance December 31, 1996 $ (1,765) $ 3,687 $ (5,809) $ (3,887)
Translation adjustments (8,147) (8,147)
Change in appreciation in market
value of marketable securities
available-for-sale (1,140) (1,140)
Sale of available-for-sale
securities (2,547) (2,547)
Change in minimum pension
liability adjustment 5,809 5,809
--------- --------- --------- ---------
Balance December 31, 1997 (9,912) -- -- (9,912)
Translation adjustments 2,704 2,704
--------- --------- --------- ---------
Balance December 31, 1998 (7,208) -- -- (7,208)
Translation adjustments (5,820) (5,820)
--------- --------- --------- ---------
Balance December 31, 1999 $(13,028) -- -- $ (13,028)
========= ========= ========= =========
</TABLE>
In December 1999, the Company issued 2.75 million shares of common stock
in a public offering.
At December 31, 1999, KKR and its affiliates owned 63.9% of the Company's
outstanding common stock.
Note 7 - Leases
At December 31, 1999, the Company was committed under operating leases
which expire at various dates through 2008. Total rent expense under operating
leases for the years 1999, 1998, and 1997 was $15,895, $13,927 and $11,495
respectively.
Minimum lease payments under non-cancelable operating leases are as
follows:
2000 $11,766
2001 8,186
2002 5,945
2003 4,598
2004 3,528
Beyond 2004 913
-------
Total minimum obligation $34,936
=======
33
<PAGE>
Note 8 - Reportable Business Segments and International Operations
The Company has two reportable business segments: interconnect products and
assemblies and cable products. The interconnect products and assemblies segment
produces connectors and connector assemblies primarily for the communications,
aerospace, industrial and automotive markets. The cable products segment
produces coaxial and flat ribbon cable primarily for communication markets,
including cable television. The accounting policies of the segments are the same
as those for the Company as a whole and are described in Note 1 herein. The
Company evaluates the performance of business units on, among other things,
profit or loss from operations before interest expense, goodwill and other
intangible amortization expense, headquarters' expense allocations, income taxes
and nonrecurring gains and losses. The Company's reportable segments are an
aggregation of business units that have similar production processes and
products.
<TABLE>
<CAPTION>
Interconnect products Cable
and assemblies products Total
---------------------------------- ---------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales
- external $ 769,967 $ 718,109 $ 679,887 $ 240,636 $ 200,768 $ 204,461 $1,010,603 $ 918,877 $ 884,348
- intersegment 569 358 102 9,417 7,189 5,037 9,986 7,547 5,139
Depreciation and
amortization 21,953 18,235 15,029 3,446 3,039 2,960 25,399 21,274 17,989
Segment operating
income 135,721 135,739 132,520 47,585 31,880 39,313 183,306 167,619 171,833
Segment assets 347,844 311,892 256,380 53,554 55,119 58,743 401,398 367,011 315,123
Additions to property,
plant and equipment 21,321 22,483 21,275 2,032 3,834 2,666 23,353 26,317 23,941
</TABLE>
Reconciliation of segment operating income to consolidated income before taxes
and extraordinary item:
1999 1998 1997
--------- --------- ---------
Segment operating income $ 183,306 $ 167,619 $ 171,833
Amortization of goodwill (12,371) (11,701) (11,316)
Interest expense (79,297) (81,199) (64,713)
Headquarters' expense and other net expenses (15,468) (10,736) (8,630)
--------- --------- ---------
Consolidated income before taxes
and extraordinary item $ 76,170 $ 63,983 $ 87,174
========= ========= =========
Reconciliation of segment assets to consolidated total assets:
1999 1998 1997
-------- -------- --------
Segment assets $401,398 $367,011 $315,123
Goodwill 360,999 360,265 339,223
Other unallocated assets 73,979 80,125 82,808
-------- -------- --------
Consolidated total assets $836,376 $807,401 $737,154
======== ======== ========
34
<PAGE>
Geographic information:
<TABLE>
<CAPTION>
Land and
Net Sales depreciable assets
---------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States $ 627,699 $591,377 $581,278 $ 65,536 $ 70,072 $ 64,020
Europe 268,815 245,057 230,923 39,811 43,301 36,519
Other 199,426 155,350 133,355 14,603 13,406 11,053
Eliminations (85,337) (72,907) (61,208)
---------- -------- -------- -------- -------- --------
Total $1,010,603 $918,877 $884,348 $119,950 $126,779 $111,592
========== ======== ======== ======== ======== ========
</TABLE>
Revenues by geographic area are based on origin of shipment. The Company
had export sales from the United States operations of approximately $81,000,
$58,000 and $88,000 in 1999, 1998 and 1997, respectively.
Note 9 - Other Expenses, net
Other income (expense) is comprised as follows:
Year Ended December 31,
- --------------------------------------------------------------------------------
1999 1998 1997
------- ------- -------
Interest income $ 541 $ 121 $ 234
Foreign currency transaction gains 499 1,445 1,283
Program fees on sale of accounts receivable (3,851) (4,121) (3,671)
Minority interests (2,220) (849) (1,042)
Gain on sale of marketable securities 3,917
Agency and commitment fees (701) (705) (678)
Other 470 (436) (1,104)
------- ------- -------
$(5,262) $(4,545) $(1,061)
======= ======= =======
35
<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,
Allied is currently obligated to pay 80% of the costs up to $30,000 and 100% of
the costs in excess of $30,000. At December 31, 1999, approximately $20,000 of
total costs have been incurred applicable to this agreement. Management does not
believe that the costs associated with resolution of these or any other
environmental matters will have a material adverse effect on the Company's
financial condition or results of operations.
A subsidiary of the Company has an agreement with a financial institution
whereby the subsidiary can sell an undivided interest of up to $60,000 in a
designated pool of qualified accounts receivable. The agreement expires in May
2004. Under the terms of the agreement, new receivables are added to the pool as
collections reduce previously sold accounts receivable. The Company services,
administers and collects the receivables on behalf of the purchaser. Fees
payable to the purchaser under this agreement are equivalent to rates afforded
high quality commercial paper issuers plus certain administrative expenses and
are included in other expenses, net, in the accompanying Consolidated Statement
of Income. The agreement contains certain covenants and provides for various
events of termination. In certain circumstances the Company is contingently
liable for the collection of the receivables sold; management believes that its
allowance for doubtful accounts is adequate to absorb the expense of any such
liability. At December 31, 1999 and 1998, approximately $60,000 in receivables
were sold under the agreement and are therefore not reflected in the accounts
receivable balance in the accompanying Consolidated Balance Sheet.
Note 11 - Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and short-term cash investments: The carrying amount approximates
fair value because of the short maturity of those instruments.
Long-term debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities. At December 31, 1999 and 1998, based on market quotes for the same
or similar securities it is estimated that the Company's 9 7/8% Subordinated
Debentures were trading at a premium of 5% over book value. The book value of
the Company's other long-term debt approximates fair value.
Investments: The Company periodically uses derivative financial
instruments. The instruments are primarily used to manage defined interest rate
risk, and to a lesser extent foreign exchange and commodity risks arising out of
the Company's core activities. In 1997, the Company entered into interest rate
swaps to limit exposure to interest rate fluctuations on the Company's floating
rate bank debt. At December 31, 1999 and 1998, the Company had $450,000 of
interest rate swaps outstanding as described in Note 3. While it is not the
Company's intention to terminate the interest rate swap agreements, the fair
values were estimated by obtaining quotes from brokers which represented the
amounts that the Company would receive or pay if the agreements were terminated.
These fair values indicated that termination of the agreements at December 31,
1999 and 1998 would have resulted in a pretax gain of $3,543 and a pretax loss
of $12,829, respectively. Due to the volatility of interest rates, these
estimated results may or may not be realized.
The Company does not utilize financial instruments for trading or other
speculative purposes. It is estimated that the carrying value of the Company's
other financial instruments at December 31, 1999 and 1998 approximates fair
value.
36
<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>
1999
Net sales $237,164 $247,438 $256,857 $269,144
Gross profit, including depreciation 73,323 78,509 81,804 86,448
Income before extraordinary items 8,239 10,463 11,586 14,007
Income per share before extraordinary item - Basic .46 .59 .65 .76
Income per share before extraordinary item - Diluted .46 .58 .64 .74
Net income 8,239 10,463 11,586 5,333
Net income per share - Basic .46 .59 .65 .29
Net income per share - Diluted .46 .58 .64 .28
Stock price - High 38 1/2 40 3/8 56 5/8 71 1/2
- Low 29 7/16 34 1/2 39 5/16 45 3/4
1998
Net sales $228,541 $227,942 $229,018 $233,376
Gross profit, including depreciation 74,397 74,621 72,813 72,892
Net income 9,673 10,355 8,212 8,270
Net income per share - Basic .55 .59 .46 .46
Net income per share - Diluted .54 .58 .46 .46
Stock price - High 64 61 5/8 44 1/8 35 1/16
- Low 53 1/4 39 29 13/16 27 1/2
1997
Net sales $211,773 $226,996 $223,494 $222,085
Gross profit, including depreciation 69,583 75,682 74,002 74,069
Income before extraordinary items 17,497 15,774 8,559 9,434
Income per share before extraordinary item - Basic .39 .50 .49 .54
Income per share before extraordinary item - Diluted .39 .49 .48 .53
Net income (loss) 17,497 2,929 8,559 (2,268)
Net income (loss) per share - Basic .39 .09 .49 (.13)
Net income (loss) per share - Diluted .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
</TABLE>
Note 13 - Subsequent Event
On March 14, 2000, the Board of Directors approved a two-for-one split of
the Company's common stock to be paid to shareholders of record as of March 23,
2000. On or about April 25, 2000 each shareholder will receive one additional
share of common stock for each share of stock then held, subject to majority
shareholder approval of an increase in the number of authorized shares.
37
<PAGE>
Item 9. Changes in and Disagreements with Independent Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to Instruction G(3) to Form 10-K, the information required by
Item 10 with respect to the Directors of the Registrant is incorporated by
reference from the Company's definitive proxy statement which is expected to be
filed pursuant to Regulation 14A within 120 days following the end of the fiscal
year covered by this report.
The information required by Item 10 with respect to the Executive Officers
of the Registrant has been included in Part I of this Form 10-K in reliance on
Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K.
Item 11. Executive Compensation
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 11 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 12 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G(3) to Form 10-K, the information required in
Item 13 is incorporated by reference from the Company's definitive proxy
statement which is expected to be filed pursuant to Regulation 14A within 120
days following the end of the fiscal year covered by this report.
38
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
(a)(1) Consolidated Financial Statements Page
<S> <C>
Report of Management 20
Independent Auditors' Report 20
Consolidated Statement of Income -
Years Ended December 31, 1999, December 31, 1998, and December 31, 1997 21
Consolidated Balance Sheet -
December 31, 1999 and December 31, 1998 22
Consolidated Statement of Changes in Shareholders' Equity (Deficit) -
Years Ended December 31, 1999, December 31, 1998, and December 31, 1997 23
Consolidated Statement of Cash Flow -
Years Ended December 31, 1999, December 31, 1998, and December 31, 1997 24
Notes to Consolidated Financial Statements 25
</TABLE>
(a)(2) Financial Statement Schedules for the Three Years Ended December 31, 1999
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.
39
<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).*
10.4 1998 Amphenol Incentive Plan (filed as Exhibit 10.5 to the December
31, 1997 10-K).*
10.5 1999 Amphenol Incentive Plan (filed as Exhibit 10.6 to the December
31, 1998 10-K).*
10.6 2000 Amphenol Incentive Plan.
10.7 Pension Plan for Employees of Amphenol Corporation as amended and
restated effective December 31, 1997 (filed as Exhibit 10.7 to the
December 31, 1998 10-K).*
10.8 First Amendment to the Pension Plan for Employees of Amphenol
Corporation dated October 1, 1998 (filed as Exhibit 10.8 to the
December 31, 1998 10-K).*
- ----------
* Incorporated herein by reference as stated.
40
<PAGE>
10.9 Second amendment to the Pension Plan for Employees of Amphenol
Corporation dated February 4, 1999 (filed as Exhibit 10.9 to the
December 31, 1998 10-K).*
10.10 Amphenol Corporation Supplemental Employee Retirement Plan formally
adopted effective January 25, 1996 (filed as Exhibit 10.18 to the
1996 10-K).*
10.11 LPL Technologies Inc. and Affiliated Companies Employee Savings/401
(k) Plan, dated and adopted January 23, 1990 (filed as Exhibit 10.19
to the 1991 Registration Statement).*
10.12 Management Agreement between the Company and Dr. Martin H. Loeffler,
dated July 28, 1987 (filed as Exhibit 10.7 to the 1987 Registration
Statement).*
10.13 Amphenol Corporation Directors' Deferred Compensation Plan (filed as
Exhibit 10.11 to the December 31, 1997 10-K).*
10.14 Agreement and Plan of Merger among Amphenol Acquisition Corporation,
Allied Corporation and the Company, dated April 1, 1987, and the
Amendment thereto dated as of May 15, 1987 (filed as Exhibit 2 to
the 1987 Registration Statement).*
10.15 Settlement Agreement among Allied Signal Inc., the Company and LPL
Investment Group, Inc. dated November 28, 1988 (filed as Exhibit
10.20 to the 1991 Registration Statement).*
10.16 Registration Rights Agreement dated as of May 19, 1997, among NXS
Acquisition Corp., KKR 1996 Fund L.P., NXS Associates L.P., KKR
Partners II, L.P. and NXS I, L.L.C. (filed as Exhibit 99.5 to
Schedule 13D, Amendment No. 1, relating to the beneficial ownership
of shares of the Company's Common Stock by NXS I, L.L.C., KKR 1996
Fund, L.P., KKR Associates (1996) L.P., KKR 1996 GP LLC, KKR
Partners II, L.P., KKR Associates L.P., NXS Associates L.P., KKR
Associates (NXS) L.P., and KKR-NXS L.L.C. dated May 27, 1997).*
10.17 Management Stockholders' Agreement entered into as of May 19, 1997
between the Company and Martin H. Loeffler (filed as Exhibit 10.13
to the June 30, 1997 10-Q).*
10.18 Management Stockholders' Agreement entered into as of May 19, 1997
between the Company and Edward G. Jepsen (filed as Exhibit 10.14 to
the June 30, 1997 10-Q).*
10.19 Management Stockholders' Agreement entered into as of May 19, 1997
between the Company and Timothy F. Cohane (filed as Exhibit 10.15 to
the June 30, 1997 10-Q).*
10.20 1997 Option Plan for Key Employees of Amphenol and Subsidiaries
(filed as Exhibit 10.16 to the June 30, 1997 10-Q).*
10.21 Amended 1997 Option Plan for Key Employees of Amphenol and
Subsidiaries (filed as Exhibit 10.19 to the June 30, 1998 10-Q).*
10.22 Non-Qualified Stock Option Agreement between the Company and Martin
H. Loeffler dated as of May 19, 1997 (filed as Exhibit 10.17 to the
June 30, 1997 10-Q).*
- ----------
* Incorporated herein by reference as stated.
41
<PAGE>
10.23 Non-Qualified Stock Option Agreement between the Company and Edward
G. Jepsen dated as of May 19,1997 (filed as Exhibit 10.18 to the
June 30, 1997 10-Q).*
10.24 Non-Qualified Stock Option Agreement between the Company and Timothy
F. Cohane dated as of May 19, 1997 (filed as Exhibit 10.19 to the
June 30, 1997 10-Q).*
10.25 First Amendment to Amended and Restated Receivables Purchase
Agreement dated as of September 26,1997 (filed as Exhibit 10.20 to
the September 30, 1997 10-Q).*
10.26 Canadian Purchase and Sale Agreement dated as of September 26, 1997
among Amphenol Canada Corp., Amphenol Funding Corp. and Amphenol
Corporation, individually and as the initial servicer (filed as
Exhibit 10.21 to the September 30,1997 10-Q).*
10.27 Amended and Restated Credit Agreement dated as of October 3, 1997
among the Company, Amphenol Holding UK, Limited, Amphenol Commercial
and Industrial UK, Limited, the Lenders listed therein, The Chase
Manhattan Bank, as Syndication Agent, the Bank of New York, as
Documentation Agent and Bankers Trust Company, as Administrative
Agent and Collateral Agent (filed as Exhibit 10.22 to the September
30, 1997 10-Q).*
10.28 First Amendment dated as of May 1, 1998 to the Amended and Restated
Credit Agreement dated as of October 3, 1997 among the Company,
Amphenol Holding UK, Limited, Amphenol Commercial and Industrial UK,
Limited, the Lenders listed therein, The Chase Manhattan Bank, as
Syndication Agent, the Bank of New York, as Documentation Agent and
Bankers Trust Company, as Administrative Agent and Collateral Agent
(filed as Exhibit 10.25 to the March 31, 1998 10-Q).*
11 Statement regarding computation of per share earnings.
12 Statement regarding computation of ratio of earnings to fixed
charges.
16 Letter regarding change in Certifying Accountant (filed as Exhibit
16 to the June 20, 1997 Current Report on Form 8-K).*
22 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
- ----------
* Incorporated herein by reference as stated.
42
<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 28th day of March 2000.
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 28, 2000
Martin H. Loeffler and President
(Principal Executive Officer)
/s/ Edward G. Jepsen Chief Financial Officer March 28, 2000
Edward G. Jepsen (Principal Financial Officer and
Principal Accounting Officer)
/s/ Andrew Clarkson Director March 28, 2000
/s/ G. Robert Durham Director March 28, 2000
/s/ Henry R. Kravis Director March 28, 2000
/s/ Marc S. Lipschultz Director March 28, 2000
/s/ Michael W. Michelson Director March 28, 2000
/s/ George R. Roberts Director March 28, 2000
43
2000
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, President and
CEO. 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 that are 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 is measured by revenues, operating income, cash flow
of operating units and EPS Growth for total Amphenol.
IV. Administration
o Generally, payments are made during the first calendar quarter
following the plan year. All payments are subject to the
recommendation of the Chairman, President and CEO and to the
approval of the Compensation Committee.
o Payments are based upon average base salary during the plan year
(new hires will be prorated accordingly if hired after February 1st
of plan year).
o The maximum allowable payout under the plan is 2x the target bonus
as applied to average base salary.
o To be eligible for the bonus payment, a participant must be an
active employee on the payroll at the time when the bonus payment is
issued. Exceptions must be recommended by the Chairman, President
and the CEO and be approved by the Compensation Committee.
EXHIBIT 11
AMPHENOL CORPORATION
Computation of Per Share Earnings
For the Three Years Ended December 31, 1999
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income before extraordinary item .................. $ 44,295 $ 36,510 $ 51,264
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes ........................... (8,674) -- (24,547)
------------ ------------ ------------
Net income applicable to Common Stock ............. $ 35,621 $ 36,510 $ 26,717
============ ============ ============
Net income per common share:
Income before extraordinary item .............. $ 2.46 $ 2.07 $ 1.84
Extraordinary loss ............................ (.48) (.88)
------------ ------------ ------------
Net income .................................... $ 1.98 $ 2.07 $ .96
============ ============ ============
Average common shares outstanding ................. 18,029,778 17,663,212 27,806,260
============ ============ ============
Net income per common share - assuming dilution:
Income before extraordinary item .............. $ 2.42 $ 2.03 $ 1.83
Extraordinary loss ............................ (.48) -- (.88)
------------ ------------ ------------
Net income .................................... $ 1.94 $ 2.03 $ .95
============ ============ ============
Average common shares outstanding ................. 18,029,778 17,663,212 27,806,260
Employee stock options ............................ 302,230 279,185 196,717
------------ ------------ ------------
Average common shares outstanding-assuming dilution 18,332,008 17,942,397 28,002,977
============ ============ ============
</TABLE>
EXHIBIT 12
AMPHENOL CORPORATION
Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
Amphenol Historical
------------------------------------------------
Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before income taxes
and extraordinary items ......... $ 76,170 $ 63,983 $ 87,174 $109,665 $104,627
Non-recurring acquisition expenses 2,500
Undistributed earnings of
investments ..................... 60
-------- -------- -------- -------- --------
76,170 63,983 89,674 109,665 104,687
-------- -------- -------- -------- --------
Fixed charges:
Interest ........................ 79,297 81,199 64,713 24,617 25,548
Other financing fees ............ 3,851 4,121 3,671 3,504 3,902
Appropriate portion of rentals
representative of the interest
factor .......................... 5,298 4,642 3,832 4,072 3,865
-------- -------- -------- -------- --------
Total fixed charges ............. 88,446 89,962 72,216 32,193 33,315
-------- -------- -------- -------- --------
Earnings from continuing operations
before undistributed earnings of
investments, income taxes, fixed
charges and extraordinary items . $164,616 $153,945 $161,890 $141,858 $138,002
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.9x 1.7x 2.2x 4.4x 4.1x
======== ======== ======== ======== ========
</TABLE>
EXHIBIT 22
Page 1 of 2
<TABLE>
<CAPTION>
State/Country Name(s) under which Subsidiary
List of Subsidiaries of Incorporation does business (1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advanced Circuit Technology, Inc. Delaware, U.S.A. Advanced Circuit Technology
Amphenol Aerospace France, Inc. Delaware, U.S.A.
Amphenol Australia Pty Ltd. Australia
Amphenol Benelux B.V. The Netherlands Amphenol
Amphenol Borg Limited England
Amphenol do Brasil Ltda. Brazil Amphenol
Amphenol Canada Corp. Ontario, Canada Amphenol
Amphenol Commercial & Industrial
France, L.L.C. Delaware, U.S.A.
Amphenol Commercial and Industrial
UK, Limited England
Amphenol Connexus AB Sweden Connexus
Amphenol-Daeshin Electronics and
Precision Co., Ltd. Korea Dae Shin Electronics
Amphenol East Asia Limited Hong Kong AEAL, AEAM, Amphenol
Amphenol Foreign Sales Corporation Barbados
Amphenol Funding Corp. Delaware, U.S.A.
Amphenol Germany GmbH Germany
Amphenol Gesellschaft m.b.H. Austria Amphenol
Amphenol Holdings Pty. Ltd. Australia
Amphenol Holding UK, Limited England
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-Kai Jack, Inc. British Virgin Islands
Amphenol-Kai Jack Industrial Co., Ltd. Taiwan Kai Jack
Amphenol-Kai Jack (Shenzhen), Inc. China
Amphenol Limited England Amphenol
Amphenol Optimize Manufacturing Co. Arizona, U.S.A. Optimize
Amphenol Optimize Mexico S.A. de C.V. Mexico
Amphenol Socapex S.A.S. France Socapex
Amphenol T&M Antennas, Inc. Illinois
Amphenol-TFC (Changzhou)
Communications Equipment Co., Ltd. China Amphenol, Times Fiber, TFC
Amphenol Taiwan Corporation Taiwan Amphenol
</TABLE>
- --------------------------------------------------------------------------------
(1) Each subsidiary also does business under the corresponding corporate name
listed in column 1.
<PAGE>
EXHIBIT 22
Page 2 of 2
<TABLE>
<CAPTION>
State/Country Name(s) under which Subsidiary
List of Subsidiaries of Incorporation does business (1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Amphenol Technical Products
International Co. Canada Technical Products International
Amphenol-Tuchel Electronics GmbH Germany Tuchel
Amphenol USHoldco Inc. Delaware, U.S.A.
Amphetronix Limited India Amphetronix
Connex Connector Corporation California, U.S.A. Connex
Guangzhou Amphenol Electronics
Communication Co., Ltd. China
Konfektion E Elektronik GmbH Germany
Korea Air Electronic Co., Ltd. Korea
LPL Technologies Holding GmbH Germany
Lonef Svenska, AB Sweden
Matir, S.A. Uruguay
Pyle-National Ltd. England Pyle-National
Pyle-National of Canada Inc. Ontario, Canada Pyle-National
Sine Systems*Pyle Connectors Corporation Delaware, U.S.A. Sine, Pyle-National
Spectra Strip Limited England
TFC South America S.A. Argentina Times Fiber
Times Fiber Canada Limited Ontario, Canada Times Fiber
Times Fiber Communications, Inc. Delaware, U.S.A. Times Fiber
</TABLE>
- --------------------------------------------------------------------------------
(1) Each subsidiary also does business under the corresponding corporate name
listed in column 1.
EXHIBIT 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
333-35901 of Amphenol Corporation on Form S-8 of our report dated January 18,
2000 (March 14, 2000 as to Note 13), appearing in this Annual Report on Form
10-K of Amphenol Corporation for the year ended December 31, 1999.
Deloitte & Touche LLP
Hartford, Connecticut
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,898
<SECURITIES> 0
<RECEIVABLES> 113,943
<ALLOWANCES> (2,232)
<INVENTORY> 189,433
<CURRENT-ASSETS> 335,179
<PP&E> 326,873
<DEPRECIATION> (206,923)
<TOTAL-ASSETS> 836,376
<CURRENT-LIABILITIES> 145,927
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> (81,187)
<TOTAL-LIABILITY-AND-EQUITY> 836,376
<SALES> 1,010,603
<TOTAL-REVENUES> 1,010,603
<CGS> 663,978
<TOTAL-COSTS> 663,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (79,297)
<INCOME-PRETAX> 76,170
<INCOME-TAX> 31,875
<INCOME-CONTINUING> 44,295
<DISCONTINUED> 0
<EXTRAORDINARY> (8,674)
<CHANGES> 0
<NET-INCOME> 35,621
<EPS-BASIC> 2.46
<EPS-DILUTED> 2.42
</TABLE>
