-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GCJ0OO+y3l6TkKGrxdI5v5D0hR2h3Aa/om+dAoyAUY+Xend0fZXC7zS6z2Xem6Y9 WR4/0Fe/5qF33klJMlmFTA== 0000912057-99-008605.txt : 19991209 0000912057-99-008605.hdr.sgml : 19991209 ACCESSION NUMBER: 0000912057-99-008605 CONFORMED SUBMISSION TYPE: 424B1 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19991208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMPHENOL CORP /DE/ CENTRAL INDEX KEY: 0000820313 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 222785165 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B1 SEC ACT: SEC FILE NUMBER: 333-91183 FILM NUMBER: 99770482 BUSINESS ADDRESS: STREET 1: 358 HALL AVE CITY: WALLINGFORD STATE: CT ZIP: 06492 BUSINESS PHONE: 2032658900 424B1 1 424B1 Filed Pursuant to Rule 424(b)(1) Registration No. 333-91183 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS DECEMBER 7, 1999 AMPHENOL CORPORATION 2,750,000 SHARES OF CLASS A COMMON STOCK - ---------------------------------------------------------------------- THE COMPANY: - - We are 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 our products are voice, video and data communications systems, including wireless handsets, cable television systems and personal computer peripherals; commercial and military aerospace electronics; automotive and mass transportation applications; and industrial factory automation equipment. - - Amphenol Corporation 358 Hall Avenue Wallingford, CT 06492 (203) 265-8900 NYSE SYMBOL: APH THE OFFERING: - - We are offering 2,750,000 shares in the offering. - - Stockholders are not selling shares in the offering. - - The underwriters have an option to purchase an additional 412,500 shares from us to cover over-allotments. - - There is an existing trading market for the shares. The last reported sale price on the NYSE on December 7, 1999 was $69.5625 per share. - - We plan to use the proceeds from the offering to redeem part of our outstanding senior subordinated debt and to repay part of our bank term loan. - - Closing: December 10, 1999. - ---------------------------------------------------------------------------------- Per Share Total - ---------------------------------------------------------------------------------- Public offering price: $69.5625 $191,296,875 Underwriting fees: $ 3.4700 $ 9,542,500 Proceeds to Amphenol: $66.0925 $181,754,375 - ----------------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8. - --------------------------------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS MERRILL LYNCH & CO. SALOMON SMITH BARNEY TABLE OF CONTENTS
PAGE -------- Prospectus Summary..................... 1 Risk Factors........................... 8 Use of Proceeds........................ 13 Price Range of Class A Common Stock and Dividend Policy.................. 13 Capitalization......................... 14 Selected Consolidated Financial Data... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 17
PAGE -------- Business............................... 23 Management............................. 33 Description of Capital Stock........... 35 Underwriting........................... 36 Legal Matters.......................... 38 Experts................................ 38 Where You Can Find More Information.... 38 Index to Consolidated Financial Statements........................... F-1
(This page intentionally left blank.) PROSPECTUS SUMMARY THE FOLLOWING SECTION SUMMARIZES MORE DETAILED INFORMATION PRESENTED LATER IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE "RISK FACTORS." UNLESS THE CONTEXT OTHERWISE SUGGESTS, "WE," "US," "OUR" AND SIMILAR TERMS, AS WELL AS REFERENCES TO "AMPHENOL" OR THE "COMPANY," ALL REFER TO AMPHENOL CORPORATION AND ITS SUBSIDIARIES UNLESS THE CONTEXT REQUIRES OTHERWISE. THE ADDRESS AND TELEPHONE NUMBER OF AMPHENOL'S PRINCIPAL EXECUTIVE OFFICES ARE 358 HALL AVENUE, WALLINGFORD, CONNECTICUT 06492, (203) 265-8900. UNLESS INDICATED OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. THE COMPANY We are 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 our products are: - communication systems for the converging technologies of voice, video and data communications; - commercial and military aerospace electronics applications; and - industrial factory automation equipment and automotive and mass transportation applications. We focus on optimizing our mix of higher margin, higher growth application-specific products in our product offerings and maintaining continuing programs of productivity improvement. As a result of these initiatives, our operating profit margin has increased from 13.5% in fiscal year 1993 to 15.6% for the twelve months ended September 30, 1999. For the twelve months ended September 30, 1999 we reported net sales, operating profit and net income of $974.8 million, $151.8 million and $38.6 million, respectively. The table below summarizes information regarding our primary markets and end applications for our products:
COMMERCIAL AND MILITARY AEROSPACE AND OTHER MILITARY ELECTRONICS INDUSTRIAL, TRANSPORTATION COMMUNICATIONS APPLICATIONS AND OTHER ---------------------------- ---------------------------- ---------------------------- PERCENTAGE 59% (including 24% for the 20% 21% OF SALES* cable television market) PRIMARY Voice Military and Commercial Factory Automation END - wireless handsets and Aircraft Instrumentation Systems APPLICATIONS personal communication - avionics Automobile Systems devices - engine controls Mass Transportation Systems - base stations and other - flight controls Oil Exploration wireless infrastructure - entertainment systems Video Missile Systems - cable television coaxial Battlefield Communications cables, connectors and set Satellite and Space Station top converters Programs Data - cable modems - personal computers and related peripherals
- ------------------ *For the nine months ended September 30, 1999. 1 We design and manufacture connectors and interconnect systems which are used primarily to conduct electrical and optical signals for a wide range of sophisticated electronic applications. We believe, based primarily on published market research, that we are one of the largest connector manufacturers in the world. We have 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, we also believe that we are 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. We are 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. We believe 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 32% in 1998. Industry analysts estimate that the total sales for the industry were approximately $34 billion in 1998. Our Times Fiber subsidiary is the world's second largest producer of coaxial cable for the cable television market. We believe that our 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, our Times Fiber unit was the first to standardize a coaxial cable with a 1 GHZ bandwidth, and all of its coaxial cable presently has that bandwidth capability. Our 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. We are also a major supplier of coaxial cable to the developing international cable television markets. In addition, we have developed coaxial cable products, in conjunction with connector products, used in the infrastructure for wireless communication systems. We are a global manufacturer employing advanced manufacturing processes. We manufacture and assemble our products at facilities in North America, South America, Europe, Asia and Australia. We sell our connector products through our own global sales force and independent manufacturers' representatives to thousands of original equipment manufacturers, which we refer to as "OEMs," in 52 countries throughout the world as well as through a global network of electronics distributors. We sell our coaxial cable products primarily to cable television operators and to telecommunication companies who have entered the broadband communications market. For the first nine months of 1999, approximately 57% of our net sales were in North America, 27% were in Europe and 16% were in Asia and other countries. We implement our product development strategy through product design teams and collaboration arrangements with customers which results in our obtaining approved vendor status for our customer's new products and programs. We seek to have our products become widely accepted within the industry for similar applications and products manufactured by other potential customers, which we believe will provide additional sources of future revenue. By developing application-specific products, we have decreased our exposure to standard products which generally experience greater pricing pressure. In addition to product design teams and customer collaboration arrangements, we use key account managers to manage customer relationships on a global basis such that we can bring to bear our total resources to meet the worldwide needs of our multinational customers. We are also focused on making strategic acquisitions in some markets to further broaden and enhance our product offerings and expand our global capabilities. 2 Management and partnerships affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR") purchased 75% of our Class A common stock in May 1997 through a merger and recapitalization (the "Recapitalization"). KKR, through its affiliates, owned 73.7% of our Class A common stock as of November 12, 1999. No existing stockholders, including management and partnerships affiliated with KKR, will sell shares in this offering. After the offering, on a pro forma basis, KKR, through its affiliates, will own approximately 63.9% of our Class A common stock. COMPETITIVE STRENGTHS LEADER IN GROWING MARKET SEGMENTS We serve diverse markets within the connector industry such as the worldwide communications, aerospace, industrial and automotive markets and growing segments within these markets. We are a leader in the design, manufacture and marketing of connector and interconnect systems in the rapidly growing and converging markets of voice, video and data communications. We are also a leader in developing coaxial cable products for cable television systems; we have been one of the technological leaders in expanding the bandwidth characteristics of coaxial cable so as to permit greater channel capacity for offering enhanced voice, video and data communications. We have also developed interconnect technology for sophisticated military and commercial avionics applications as well as for use in the international Space Station Program. In addition, we have pioneered the development of interconnect products for automotive safety systems such as airbags and pretensioner seatbelts and have been an innovator in the development of motion control connector products for factory automation. CLOSE RELATIONSHIPS WITH MAJOR OEMS Due in part to our over 65 year history in the connector business and our reputation for innovative, high quality interconnection products, we have developed close relationships with many of our OEM customers in our various product segments. To this end, we have achieved preferred supplier designations from many OEMs, enabling us to work closely with these OEMs through product design teams and collaborative arrangements to design and manufacture application-specific products. GLOBAL PRESENCE Approximately 48% of our sales for the nine months ended September 30, 1999 were outside the United States. We have 48 manufacturing and assembly operations on five continents. Our products are sold through our global sales force and independent manufacturers' representatives to thousands of OEMs in 52 countries throughout the world as well as through a global network of electronic distributors. Our global presence enables us to serve the expanding global needs and requirements of our existing multinational and international OEM customers and to position ourselves to develop new customer relationships with other multinational and international OEMs. EXTENSIVE PRODUCT LINE Through our advanced technological and design capabilities, we have developed an extensive line of interconnect products for our customers worldwide which resulted in sales of approximately 85,000 stock keeping units in 1998. By offering a broad array of high quality products, we strive to provide highly-engineered, reliable and value-added solutions for all of our customers' interconnection needs. BROAD CUSTOMER BASE Our products are used in a wide variety of applications at over 10,000 customer locations worldwide. Our largest commercial customer accounted for approximately 5% of our net sales for the nine months ended September 30, 1999. The U.S. government and its subcontractors accounted for 7% of our net sales for the nine months ended September 30, 1999; however, we participate across a broad spectrum of defense programs and believe that no single program accounted for more than 2% of those net sales. 3 STRONG MANAGEMENT TEAM Our senior management team has successfully led us through rapid changes in the connector and interconnect industry. This management team has focused on solidifying our position as a leading provider of connector and interconnect technology in our core markets. Our management team has been working together since 1987 and our managers have significant experience in our industry. BUSINESS STRATEGY FOCUS ON RAPIDLY GROWING COMMUNICATIONS SEGMENT We intend to capitalize on the convergence in the communications sector of voice, video and data technologies. The growth in recent years of mobile communications and Internet utilization has been substantial. We believe, however, that both technologies are in their infancy in terms of market potential. We will continue to aggressively pursue these opportunities through the development of new application-specific products to serve this expanding market. EXPAND SALES OF BROADBAND PRODUCTS We believe that the increasing demand for enhanced services from existing cable television systems and the relatively low penetration rate for cable television in countries outside of the United States provides significant opportunity for future growth of coaxial cable and other broadband interconnect products. The demands of the digital age for high-speed Internet access, video on demand, specialized programming, etc., all place significant emphasis on expanded bandwidth for network delivery systems. Cable system developments are currently planned in a number of different countries, including large portions of Europe, Asia and Latin America. We believe that we are well positioned to take advantage of these opportunities because we are one of the world's leading producers of coaxial cable and broadband interconnect products and because we have extensive relationships with many of the multinational cable operators that are upgrading and expanding in the domestic and international markets. DEVELOP APPLICATION-SPECIFIC PRODUCTS FOR OEMS We seek to expand the scope and number of preferred supplier designations and application-specific assignments we have with OEM customers. We work closely with our network of OEM customers at the design stage to create and manufacture innovative connector solutions to meet our customers' specific interconnection needs. Our application-specific products designed and manufactured for OEMs in this manner generally have higher value-added content than our other interconnection products and have been developed across all of our product lines. EXPAND PRODUCT LINES Our product lines encompass market segments comprising approximately 50% of the $34 billion connector industry. We have broad product lines for the markets we serve; as an example, in 1998 our sales included approximately 85,000 stock keeping units. We continuously strive to expand our product lines in order to become a primary source supplier of interconnect solutions for many of our customers. By expanding our product lines, we intend to leverage our extensive customer relationships to cross-sell additional connector products. EXPAND GLOBAL PRESENCE We intend to further expand our global manufacturing, sales and service operations to better serve our existing client base, penetrate developing markets and establish new customer relationships. As our multinational OEM customers expand their international operations to take advantage of developing markets and the lower manufacturing and labor costs of such markets, we intend to similarly expand our international capabilities in order to provide just-in-time facilities near these customers. We believe 4 that this type of international expansion will enable us to take advantage of the lower manufacturing costs in some countries. We have established low-cost manufacturing and assembly facilities in the three major geographical markets of the Americas, Europe and Asia. PURSUE STRATEGIC ACQUISITIONS AND INVESTMENTS We intend to continue to pursue strategic acquisitions that complement our existing business and further expand our product lines and technological capabilities. We believe that the fragmented nature of the connector industry provides significant opportunities for future strategic acquisitions. Furthermore, we believe that we can improve the profitability of the acquired companies through economies of scale. We believe that this offering should position us to more effectively capitalize on acquisition opportunities. THE OFFERING Class A common stock offered(1).............. 2,750,000 shares Class A common stock to be outstanding after the offering(2)...................... 20,615,544 shares Use of Proceeds.............................. We plan to use the proceeds from the offering to redeem part of our outstanding senior subordinated debt and to repay part of our bank term loan. NYSE symbol for the Class A common stock..... APH
- ------------------------ (1) Excludes 412,500 shares of Class A common stock to be sold if the underwriters' over-allotment option is exercised in full. See "Underwriting." (2) Based upon outstanding shares as of October 1, 1999 and exclusive of up to 1,481,946 shares issuable on the exercise of stock options in connection with employee benefit plans. 5 SUMMARY CONSOLIDATED FINANCIAL DATA The following summary consolidated financial data for the three years ended December 31, 1998, has been derived from the consolidated financial statements of Amphenol and should be read in conjunction with the consolidated financial statements and notes thereto incorporated herein by reference and "Capitalization," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The unaudited financial information presented below for the nine-month period ended September 30, 1999, reflects all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of Amphenol's consolidated results of operations and financial position for such periods. The information shown for the nine-month periods is not necessarily indicative of full year results. The pro forma data set forth under the "Year Ended December 31, 1998" and "Nine Months Ended September 30, 1999" columns in the "Pro Forma Income Statement Data" section of the following table gives effect to the offering as if it had occurred on the first day of each period. The pro forma data set forth under the "As Adjusted for the Offering" column gives effect to the offering as if it had occurred on September 30, 1999.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales.............................. $ 776,221 $ 884,348 $ 918,877 $ 685,501 $ 741,459 Cost and expenses: Cost of sales, excluding depreciation and amortization................... 494,689 572,092 601,930 447,494 487,685 Depreciation and amortization expense............................ 17,846 20,428 23,553 17,181 21,057 Selling, general and administrative expense............................ 114,746 125,064 131,966 98,191 107,428 Amortization of goodwill............. 10,962 11,316 11,701 8,653 9,263 ----------- ----------- ----------- ----------- ----------- Operating income....................... 137,978 155,448 149,727 113,982 116,026 Interest expense....................... (24,617) (64,713) (81,199) (60,745) (59,673) Other expenses, net(1)................. (3,696) (3,561) (4,545) (3,022) (3,817) ----------- ----------- ----------- ----------- ----------- Income before income taxes and extraordinary item................... 109,665 87,174 63,983 50,215 52,536 Provision for income taxes............. (42,087) (35,910) (27,473) (21,975) (22,248) ----------- ----------- ----------- ----------- ----------- Income before extraordinary item....... 67,578 51,264 36,510 28,240 30,288 Extraordinary item: Loss on early extinguishment of debt, net of income taxes of $14,728..... -- (24,547) -- -- -- ----------- ----------- ----------- ----------- ----------- Net income........................... $ 67,578 $ 26,717 $ 36,510 $ 28,240 $ 30,288 =========== =========== =========== =========== =========== Net income per common share: Income before extraordinary item..... $ 1.45 $ 1.84 $ 2.07 $ 1.60 $ 1.70 Extraordinary loss................... -- (.88) -- -- -- ----------- ----------- ----------- ----------- ----------- Net income........................... $ 1.45 $ .96 $ 2.07 $ 1.60 $ 1.70 =========== =========== =========== =========== =========== Average common shares outstanding...... 46,649,541 27,806,260 17,663,212 17,596,608 17,863,510 Net income per common share--assuming dilution: Income before extraordinary item..... $ 1.45 $ 1.83 $ 2.03 $ 1.58 $ 1.67 Extraordinary loss................... -- (.88) -- -- -- ----------- ----------- ----------- ----------- ----------- Net income........................... $ 1.45 $ .95 $ 2.03 $ 1.58 $ 1.67 =========== =========== =========== =========== =========== Average common shares outstanding-- assuming dilution.................... 46,720,900 28,002,977 17,942,397 17,927,434 18,107,502
6
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA INCOME STATEMENT DATA, AS ADJUSTED FOR THE OFFERING: Net income before extraordinary items for early extinguishment of debt..... $ 49,108 $ 39,737 Interest expense....................... 61,702 45,050 Net income per common share--assuming dilution............................. $ 2.37 $ 1.91 OTHER DATA: EBITDA................................. $168,180 $188,471 $192,090 $142,109 $150,099
AS OF SEPTEMBER 30, 1999 ------------------------------- AS ADJUSTED ACTUAL FOR THE OFFERING ------------ ---------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and short-term cash investments...................... $ 8,969 $ 8,969 Working capital........................................... 193,040 193,040 Total assets.............................................. 848,163 844,282 Total debt (including current portion).................... 939,918 763,501 Total shareholders' (deficit)............................. (265,110) (92,574)
- -------------------------- (1) Other expenses for the year ended December 31, 1997 includes $2,500 of other expenses related to the Recapitalization. For purposes of the financial data set forth above in the table, "EBITDA" represents earnings before interest expense, other financing fees associated with program fees on sale of accounts receivable, interest income, income taxes, and depreciation and amortization expense, and excludes minority interest and includes other adjustments as defined in our bank credit facility. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to net income as an indicator of our operating performance or to cash flow as a measure of liquidity. EBITDA is included in the prospectus as it is a basis upon which we assess our financial performance, and certain covenants in our borrowing arrangements are tied to similar measures. EBITDA, as presented, represents a useful measure of assessing our ongoing operating activities without the impact of financing activity and non-recurring charges. While EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. 7 RISK FACTORS BEFORE YOU INVEST IN OUR CLASS A COMMON STOCK, YOU SHOULD BE AWARE OF VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, BEFORE YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR CLASS A COMMON STOCK. WE HAVE SUBSTANTIAL LEVERAGE AND DEBT OBLIGATIONS As of September 30, 1999, after giving pro forma effect to the offering, we would have $763.5 million of consolidated indebtedness and $92.6 million of consolidated shareholders' deficit. As of September 30, 1999 and after giving pro forma effect to the offering, we had $136.5 million available to be borrowed under our bank credit facility (including both the term loan and revolving credit portions). We and our subsidiaries may incur additional indebtedness in the future, subject to certain limitations contained in the instruments governing our indebtedness. We will continue to have significant debt service obligations. Our debt service obligations could have important consequences to our operations, including: - a substantial portion of our cash flow available from operations after satisfying some liabilities arising in the ordinary course of business will be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds that would otherwise be available to us, including funds for acquisitions and future business opportunities; - our ability to obtain additional financing in the future may be limited; - some of our borrowings (including, but not limited to, the amounts borrowed under our bank credit facility) are at variable rates of interest, which could cause us to be vulnerable to increases in interest rates; - our flexibility in planning for, or reacting to, changes in our business and the industry may be limited; - our higher degree of leverage may make us relatively more vulnerable to economic downturns and competitive pressures; and - a substantial decrease in our net operating cash flows or an increase in our expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations. Our ability to make scheduled payments of the principal of, or to pay interest on, or to refinance our indebtedness and to make scheduled payments under our operating leases depends on our future performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond our control. Based upon the current level of operations and anticipated growth, management believes that future cash flow from operations, together with available borrowings under our bank credit facility, will be adequate to meet our anticipated requirements for capital expenditures, working capital, interest payments and scheduled principal payments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." There can be no assurance, however, that our business will continue to generate sufficient cash flows from operations in the future to service our debt and make necessary capital expenditures after satisfying liabilities arising in the ordinary course of business. If we are not able to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing. There can be no assurance that any refinancing would be possible or that any such sales of assets or additional financing could be achieved. 8 WE ARE INCREASINGLY DEPENDENT ON THE TELECOMMUNICATIONS INDUSTRY, INCLUDING THE WIRELESS COMMUNICATIONS INDUSTRY Approximately 17% of our revenues came from sales to the telecommunications industry, including the wireless communications industry in the nine month period ended September 30, 1999, as compared to 12% in the comparable period in 1998. Demand for these products is subject to rapid technological change (see "--We are dependent on the acceptance of new product introductions for continued revenue growth"). This market is dominated by several large manufacturers who regularly exert significant price pressure on their suppliers, including us. There can be no assurance that we will be able to continue to compete successfully in our sales to the telecommunications industry, and our failure to do so could impair our results of operations. WE ARE DEPENDENT ON THE CABLE TELEVISION INDUSTRY AND CABLE TELEVISION CAPITAL SPENDING Approximately one quarter of our revenues come from sales to the cable television industry. Demand for our cable television products depends primarily on capital spending by cable television operators for constructing, rebuilding or upgrading their systems. The amount of this capital spending, and, therefore, our sales and profitability will be affected by a variety of factors, including general economic conditions, acquisitions of cable television operators by non-cable television operators, cable system consolidation within the industry, the financial condition of domestic cable television operators and their access to financing, competition from satellite and wireless television providers and telephone companies, technological developments and new legislation and regulation of cable television operators. There can be no assurance that cable television capital spending will increase from historical levels or that existing levels of cable television capital spending will be maintained. Although the domestic cable television industry is comprised of approximately 10,900 cable systems, a small number of cable television operators own a majority of cable television systems and account for a majority of the capital expenditures made by cable television operators. The loss of some or all of our principal cable television customers could have a material adverse effect on our business. CHANGES IN MILITARY EXPENDITURES MAY REDUCE OUR SALES We are a major supplier of high performance environmental connectors for military applications. The U.S. defense budget has been declining in real terms since the mid-1980s, resulting in some delays in new program starts, program deferrals and program cancellations. Sales under contracts with the U.S. government or under contracts with subcontractors that identified the U.S. government as the ultimate purchaser represented approximately 8% of our sales for the year ended December 31, 1998, compared to approximately 9% for 1997 and 8% for 1996. Additionally, we sell our products to the U.S. government through our distributors. Our participation across a broad spectrum of defense programs is such that we believe that no one military program accounted for more than 2% of 1998 net sales. A significant further decline in U.S. military expenditures could adversely affect our sales. WE ENCOUNTER COMPETITION IN SUBSTANTIALLY ALL AREAS OF OUR BUSINESS We compete 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 we do, as well as medium to smaller companies. In the area of coaxial cable for cable television, we believe that we and CommScope, Inc. are the primary providers of such cable; however, CommScope is larger than Amphenol in this market. There can be no assurance that additional competitors will not enter our existing markets, nor can there be any assurance that we will be able to compete successfully against existing or new competition. 9 WE ARE DEPENDENT ON THE ACCEPTANCE OF NEW PRODUCT INTRODUCTIONS FOR CONTINUED REVENUE GROWTH Management estimates that products introduced in the last two years accounted for approximately 20% of net sales for the nine months ended September 30, 1999. Our long-term results of operations depend substantially upon our ability to continue to conceive, design, source and market new products and upon continuing market acceptance of our existing and future product lines. In the ordinary course of our business, we continually develop or create new product line concepts. If we fail or are significantly delayed in introducing new product line concepts or if our new products do not meet with market acceptance, our results of operations may be impaired. OUR ACTIONS MAY BE RESTRICTED BY LOAN COVENANTS Our credit facility and the indenture relating to our senior subordinated notes contain numerous financial and operating covenants that limit the discretion of our management with respect to some business matters. The covenants place significant restrictions on, among other things, our ability to incur additional indebtedness, to create liens or other encumbrances, to make some payments and investments, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. The credit facility also requires us to meet some financial ratios and tests. A failure to comply with the obligations contained in the credit facility or the indenture could result in an event of default under either the credit facility or the indenture, which could result in the acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross- acceleration or cross-default provisions. OUR RESULTS MAY BE NEGATIVELY AFFECTED BY CHANGING INTEREST RATES We are subject to market risk from exposure to changes in interest rates based on our financing activities. We utilize interest rate swap agreements to manage and mitigate our exposure to changes in interest rates. At September 30, 1999, we had interest rate protection in the form of such swaps that effectively fixed our LIBOR interest rate on $450 million of floating rate bank debt at 5.76%. At September 30, 1999, the three month LIBOR rate was approximately 6.08%. These 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 September 30, 1999 would have the effect of increasing or decreasing interest expense by approximately $1.5 million. However, if the LIBOR interest rate increased above 7% (a 15% increase from the LIBOR interest rate at September 30, 1999), further increases above 7% would have a more significant effect in increasing interest expense. We do not expect changes in interest rates to have a material effect on income or cash flows in 1999, although there can be no assurance that interest rates will not significantly change. OUR RESULTS MAY BE NEGATIVELY AFFECTED BY FOREIGN CURRENCY EXCHANGE RATES We conduct business in several major international currencies through our worldwide operations, and as a result we are subject to foreign exchange exposures due to changes in exchange rates of the various currencies. Changes in exchange rates can positively or negatively affect our sales, gross margins and retained earnings. We attempt to minimize currency exposure risk by producing our 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 our working capital; however, 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 our worldwide operations. In addition, we periodically enter into foreign exchange contracts to hedge our transaction exposures. At September 30, 1999 we had no outstanding foreign exchange contracts. We do not engage in purchasing forward exchange contracts for speculative purposes. 10 OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY FOREIGN OPERATIONS International manufacturing and sales are subject to inherent risks, including changes in local economic or political conditions, the imposition of currency exchange restrictions, unexpected changes in regulatory environments, potentially adverse tax consequences and the exchange rate risk discussed above. There can be no assurance that these factors will not have a material adverse impact on our production capabilities or otherwise adversely affect our business and operating results. EXISTING STOCKHOLDERS MAY SELL THEIR CLASS A COMMON STOCK WHICH MAY REDUCE OUR STOCK PRICE We cannot predict the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Class A common stock. Sales of substantial amounts of Class A common stock (including shares issued upon the exercise of stock options), or the perception that such sales could occur, may adversely affect prevailing market prices for the Class A common stock. Amphenol, its officers and directors and some of its stockholders (which in the aggregate owned 13,434,319 shares at November 12, 1999), including affiliates of KKR, are not selling shares in this offering and have agreed not to offer, sell, contract to sell or otherwise dispose of any Class A common stock for a period of 90 days after the date of this prospectus without the written consent of Donaldson, Lufkin & Jenrette Securities Corporation. WE WILL CONTINUE TO BE CONTROLLED BY AFFILIATES OF KKR AS LONG AS IT CONTROLS A MAJORITY OF OUR OUTSTANDING VOTING STOCK, AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF STOCKHOLDERS' VOTING DURING SUCH TIME 13,165,745 shares or approximately 73.7% of the outstanding shares of Class A common stock are held on a fully diluted basis by three limited partnerships affiliated with KKR, KKR 1996 Fund L.P., NXS Associates L.P. and KKR Partners II L.P. (the "KKR Partnerships") organized at the direction of KKR and who are controlled by affiliates of KKR. KKR and its affiliates are not selling shares in the offering. After the offering, the KKR Partnerships will own 13,165,745 shares or approximately 63.9% of our outstanding Class A common stock on a fully diluted basis and will continue to control us. Accordingly, affiliates of KKR will be able to elect the entire Board, control the management and policies of Amphenol and, in general, determine (without the consent of our other stockholders) the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations and the sale of all or substantially all of Amphenol's assets. Affiliates of KKR will also be able to prevent or cause a change in control of Amphenol and will be able, under most circumstances, to amend our charter or bylaws at any time. The directors elected by the KKR Partnerships will have the authority to effect decisions affecting the capital structure of Amphenol, including the issuance of additional capital stock, the implementation of stock repurchase programs and the declaration of dividends. In addition, there can be no assurance that the interests of KKR and its affiliates will not conflict with the interest of the other holders of the Class A common stock. FAILURE TO ACHIEVE YEAR 2000 READINESS COULD DISRUPT OPERATIONS AND CAUSE FINANCIAL LOSSES WHICH COULD DECREASE OUR STOCK PRICE We believe we have replaced all of our systems that were not Year 2000 compliant. However, if any of our systems are not compliant or if our customers, buying agencies, manufacturers or shippers fail to achieve Year 2000 compliance, we may experience the following adverse consequences: - We may be unable to receive our products due to failures by our manufacturers, buying agencies or shippers; - Our customers may be unable to place orders with us due either to our system failures or those of our customers; and 11 - We may be unable to deliver our products on a timely basis. For a description of our Year 2000 compliance efforts you should read "Management's Discussion and Analysis of Financial Condition and Results of Operations--Information Systems and the Year 2000." THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS Some of the matters discussed under the captions "Prospectus Summary," "Risk Factors," "Business" and elsewhere in this prospectus include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and similar expressions are forward-looking statements. Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. These forward-looking statements are made as of the date of this prospectus, and we assume no obligation to update them or the reasons why actual results may differ. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Cautionary Statements for Purposes of Forward-Looking Information." 12 USE OF PROCEEDS The net proceeds to Amphenol from the sale of the 2,750,000 shares of Class A common stock offered hereby, after deducting the underwriting fees and estimated offering expenses of $10.2 million, are estimated to be approximately $181.1 million, based on a price per share of $69.5625. These proceeds will be used to redeem $96.0 million principal amount of Amphenol's 9 7/8% Senior Subordinated Notes due 2007, pay associated prepayment penalties and expenses, net of tax benefits and repay $80.5 million of indebtedness under one of Amphenol's term loans. The term loan will mature in May 2005. At September 30, 1999, the interest rate on the term loan to be partially repaid was 8.1% per annum. PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY Our Class A common stock is listed on the New York Stock Exchange (the "NYSE"). The following table sets forth the range of high and low sale prices as reported on the NYSE Composite Transactions Tape during the periods indicated:
PERIOD HIGH LOW - ------ -------- -------- 1996 First Quarter............................................. $26 $20 1/8 Second Quarter............................................ 27 5/8 19 7/8 Third Quarter............................................. 22 7/8 18 3/4 Fourth Quarter............................................ 23 19 1997 First Quarter............................................. $26 1/8 $21 1/2 Second Quarter............................................ 39 23 Third Quarter............................................. 43 13/16 38 1/2 Fourth Quarter............................................ 56 5/8 42 7/8 1998 First Quarter............................................. $64 $52 3/4 Second Quarter............................................ 61 5/8 39 Third Quarter............................................. 44 1/4 29 5/16 Fourth Quarter............................................ 35 1/2 27 1999 First Quarter............................................. $38 1/2 $29 7/16 Second Quarter............................................ 40 3/8 34 1/2 Third Quarter............................................. 56 5/8 39 5/16 Fourth Quarter (through December 7, 1999)................. 70 1/4 45 3/4
The last reported sale price of the Class A common stock on the NYSE on December 7, 1999, was $69.5625 per share. Holders of Class A common stock are entitled to receive cash dividends when declared by the Board out of funds legally available. Since our initial public offering in 1991, we have not paid any cash dividends on our Class A common stock and we do not have any present intention to commence payment of any cash dividends. We intend to retain earnings to provide funds for the operation and expansion of our business and to repay outstanding indebtedness. Currently we are restricted from declaring and paying any cash dividends on, or repurchasing our Class A common stock under some covenants contained in our debt agreements. 13 CAPITALIZATION The following table sets forth our consolidated capitalization as of September 30, 1999, and as adjusted to give effect to (i) the receipt by us of the net proceeds from the offering, after deducting the underwriting discount and estimated offering expenses payable by us, and (ii) the application of the net proceeds as described under "Use of Proceeds." The following table should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this prospectus.
AT SEPTEMBER 30, 1999 ---------------------------- AS ADJUSTED ACTUAL FOR THE OFFERING --------- ---------------- (IN THOUSANDS) Long-term debt (including current portion): Revolving credit facility................................. $ 5,500 $ 5,583 Term loan facility........................................ 680,000 599,500 9 7/8% Senior Subordinated Notes due 2007................. 240,000 144,000 Other debt (a)............................................ 14,418 14,418 --------- --------- Total long-term debt.................................... 939,918 763,501 Stockholders' deficit: Class A common stock, par value $.001 per share; 40,000,000 shares authorized............................ 18 21 Additional paid-in deficit................................ (499,793) (318,709) Accumulated earnings (b).................................. 245,149 236,598 Accumulated other comprehensive loss...................... (10,484) (10,484) --------- --------- Total stockholders' deficit............................. (265,110) (92,574) --------- --------- Total capitalization........................................ $ 674,808 $ 670,927 ========= =========
- ------------------------ (a) Represents debt of foreign subsidiaries and capital leases. (b) Accumulated earnings as adjusted for the offering has been reduced by $13,361, less applicable taxes of $4,810, to writeoff deferred financing costs and the premium associated with the purchase of the 9 7/8% Senior Subordinated Notes. 14 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial information has been derived from our consolidated financial statements for (i) each of the two years in the period ended December 31, 1998, which statements have been audited by Deloitte & Touche LLP, (ii) the year ended December 31, 1996, which statements have been audited by PricewaterhouseCoopers LLP and (iii) the unaudited nine month periods ended September 30, 1998 and 1999. The information set forth below should be read in conjunction with our consolidated financial statements and notes thereto and "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The financial information presented below for the nine month periods ended September 30, 1998 and 1999, reflects all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our consolidated results of operations and financial position for such periods. The information shown for the nine-month periods is not necessarily indicative of full year results. The pro forma data set forth under the "Year Ended December 31, 1998" and "Nine Months Ended September 30, 1999" columns in the "Pro Forma Income Statement Data" section of the following table gives effect to the offering as if it had occurred on the first day of each period. The pro forma data set forth under the "As Adjusted for the Offering" column gives effect to the offering as if it had occurred on September 30, 1999.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------ ----------------------- 1996 1997 1998 1998 1999 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales.............................. $ 776,221 $ 884,348 $ 918,877 $ 685,501 $ 741,459 Cost and expenses: Cost of sales, excluding depreciation and amortization................... 494,689 572,092 601,930 447,494 487,685 Depreciation and amortization expense............................ 17,846 20,428 23,553 17,181 21,057 Selling, general and administrative expense............................ 114,746 125,064 131,966 98,191 107,428 Amortization of goodwill............. 10,962 11,316 11,701 8,653 9,263 ---------- ---------- ---------- ---------- ---------- Operating income....................... 137,978 155,448 149,727 113,982 116,026 Interest expense....................... (24,617) (64,713) (81,199) (60,745) (59,673) Other expenses, net(1)................. (3,696) (3,561) (4,545) (3,022) (3,817) ---------- ---------- ---------- ---------- ---------- Income before income taxes and extraordinary item................... 109,665 87,174 63,983 50,215 52,536 Provision for income taxes............. (42,087) (35,910) (27,473) (21,975) (22,248) ---------- ---------- ---------- ---------- ---------- Income before extraordinary item....... 67,578 51,264 36,510 28,240 30,288 Extraordinary item: Loss on early extinguishment of debt, net of income taxes of $14,728..... -- (24,547) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income........................... $ 67,578 $ 26,717 $ 36,510 $ 28,240 $ 30,288 ========== ========== ========== ========== ========== Net income per common share: Income before extraordinary item..... $ 1.45 $ 1.84 $ 2.07 $ 1.60 $ 1.70 Extraordinary loss................... -- (.88) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income........................... $ 1.45 $ .96 $ 2.07 $ 1.60 $ 1.70 ========== ========== ========== ========== ========== Average common shares outstanding...... 46,649,541 27,806,260 17,663,212 17,596,608 17,863,510 Net income per common share--assuming dilution: Income before extraordinary item..... $ 1.45 $ 1.83 $ 2.03 $ 1.58 $ 1.67 Extraordinary loss................... -- (.88) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income........................... $ 1.45 $ .95 $ 2.03 $ 1.58 $ 1.67 ========== ========== ========== ========== ========== Average common shares outstanding-- assuming dilution.................... 46,720,900 28,002,977 17,942,397 17,927,434 18,107,502
15
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------ ----------------------- 1996 1997 1998 1998 1999 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA INCOME STATEMENT DATA, AS ADJUSTED FOR THE OFFERING: Net income before extraodinary items for early extinguishment of debt..... $ 49,108 $ 39,737 Interest expense....................... 61,702 45,050 Net income per common share--assuming dilution............................. $ 2.37 $ 1.91 OTHER DATA: EBITDA................................. $168,180 $188,471 $192,090 $142,109 $150,099
AS OF SEPTEMBER 30, 1999 ------------------------------- AS ADJUSTED ACTUAL FOR THE OFFERING ------------ ---------------- (IN THOUSANDS) BALANCE SHEET DATA (AT PERIOD END): Cash and short-term cash investments...................... $ 8,969 $ 8,969 Working capital........................................... 193,040 193,040 Total assets.............................................. 848,163 844,282 Total debt (including current portion).................... 939,918 763,501 Total shareholders' (deficit)............................. (265,110) (92,574)
- ------------------------ (1) Other expenses for the year ended December 31, 1997 includes $2,500 of other expenses related to the Recapitalization. For purposes of the financial data set forth above in the table, "EBITDA" represents earnings before interest expense, other financing fees associated with program fees on sale of accounts receivable, interest income, income taxes, and depreciation and amortization expense, and excludes minority interest and includes other adjustments as defined in our bank credit facility. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to net income as an indicator of our operating performance or to cash flow as a measure of liquidity. EBITDA is included in the prospectus as it is a basis upon which we assess our financial performance, and certain covenants in our borrowing arrangements are tied to similar measures. EBITDA, as presented, represents a useful measure of assessing our ongoing operating activities without the impact of financing activity and non-recurring charges. While EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our audited consolidated financial statements and notes for the three years ended December 31, 1998 and our condensed consolidated financial statements and notes for the nine months ended September 30, 1999 included elsewhere in this prospectus. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1998 Net sales for the third quarter of 1999 increased 12% to $256.9 million compared to $229.0 million for the third quarter of 1998. Net sales for the nine months ended September 30, 1999 increased 8% to $741.5 million compared to $685.5 million for the comparable 1998 period. The increase in sales for the third quarter and nine-month 1999 periods is primarily attributable to increased sales of products and interconnect systems for wireless and broadband communication applications offset in part by a decline in interconnect products for aerospace applications. Currency translation had the effect of reducing sales in the third quarter 1999 by approximately $1.6 million and by approximately $1.5 million in the nine-month period 1999 when compared to exchange rates for the comparable 1998 periods. The gross profit margin as a percentage of net sales (including depreciation in cost of sales) remained constant at approximately 32% for the three and nine months ended September 30, 1999 compared to the 1998 periods. Selling, general and administrative expenses as a percentage of net sales remained relatively constant at approximately 14% for the third quarter and nine months ended September 30, 1999 and 1998, respectively. Interest expense for the third quarter and nine months decreased to $20.0 million and $59.7 million in 1999 from $20.5 million and $60.7 million in 1998, respectively. The decrease in both periods is primarily attributable to lower interest rates on our term loan facility as well as reduced indebtedness for the nine months ended September 30, 1999 compared to the 1998 period. The provision for income taxes for the third quarter and nine months was $8.3 million and $22.2 million in 1999 compared to $6.6 million and $22.0 million in 1998, respectively. The 1999 estimated effective tax rate of approximately 42% reflects federal, state and foreign taxes and the generally non-deductible expense of goodwill amortization. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 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 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. 17 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 our 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 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 our Consolidated Financial Statements set forth elsewhere in this prospectus 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. YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 Net sales were $884.3 million for the year ended December 31, 1997 compared to $776.2 million for 1996. Sales of interconnect products and assemblies increased 16% compared to 1996 ($679.9 million in 1997 versus $585.0 million in 1996). Such increase is primarily due to increased sales for wireless communications, data applications and smart card acceptor devices as well as new and enhanced electronic aerospace and avionics interconnect systems for space, military and commercial aviation applications. Sales of cable products increased 7% compared to 1996 ($204.5 million in 1997 versus $191.2 million in 1996). Such increase is primarily due to increased sales of coaxial cable for international cable television applications and increased sales of flat ribbon cable for communication applications, partially offset by a decline in sales of coaxial cable for U.S. cable television applications as a result of soft demand and competitive pricing pressures. Geographically, sales in the U.S. in 1997 increased 16% compared to 1996 ($462.3 million in 1997 versus $397.0 million in 1996); international sales for 1997, including export sales, increased 11% in U.S. dollars ($422.0 million in 1997 versus $379.2 million in 1996) and increased approximately 18% in local currencies compared to 1996. The comparatively stronger U.S. dollar in 1997 had the currency translation effect of decreasing net sales by approximately $24.6 million when compared to foreign currency translation rates in 1996. The gross profit margin as a percentage of net sales (including depreciation in cost of sales) decreased to 33% in 1997 from 34% in 1996. The decrease is generally attributable to price reductions on our coaxial cable products partially offset by increased sales of higher margin application-specific connector products, increased efficiencies due to increased production rates for certain connector products and continuing cost control programs. Selling, general and administrative expenses as a percentage of sales declined to approximately 14% in 1997 compared to approximately 15% in 1996 primarily as a result of higher sales volume in the 1997 period. 18 Interest expense was $64.7 million for 1997 compared to $24.6 million for 1996. The increase is due to increased debt levels resulting from the Recapitalization in May 1997. Other expenses, net for 1997 was $1.1 million, a decrease of $2.6 million from 1996. See Note 9 to our Consolidated Financial Statements set forth elsewhere in this prospectus for details of the components of other expenses, net. The provision for income taxes for 1997 was at an effective rate of 41.2% compared to an effective rate of 38.4% in 1996. The increase is generally attributable to non-deductible expenses (goodwill amortization) being a higher percentage of pre-tax income. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $40.2 million in the nine months ended September 30, 1999 compared to $35.7 million in the 1998 period. The increase in cash flow relates primarily 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 1999, cash from operating activities was used to fund capital expenditures of $18.3 million and acquisitions of $1.4 million, and to repay indebtedness of $14.6 million. In 1998, cash from operating activities and borrowings under the credit facility were used to fund capital expenditures of $20.8 million and acquisitions of $30.4 million. In conjunction with the Recapitalization in 1997, we 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 our 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 our common stock. At September 30, 1999 there were $680 million of borrowings outstanding under the term loan facility. Availability under the revolving credit facility at September 30, 1999 was $136.5 million, after reduction of $8.0 million for outstanding letters of credit. The availability under the revolving credit facility will remain unchanged as a result of the offering. Pro forma for the application of proceeds from the offering, borrowing outstanding under the Bank Agreement was $605.1 million at September 30, 1999. In July 1997, we entered into interest rate protection agreements that effectively fixed our 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. Our EBITDA as defined in the Bank Agreement was $150.1 million and $142.1 million for the nine months ended September 30, 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. We believe that EBITDA provides additional information for determining our ability to meet future debt service requirements; however, EBITDA does not reflect cash available to fund debt requirements. Our primary ongoing cash requirements will be for debt service, capital expenditures and product development activities. Our debt service requirements consist primarily of principal and interest on bank borrowings and interest on our 9 7/8% Senior Subordinated Notes due 2007. Pro forma for the application of proceeds from the offering, the face value of the 9 7/8% Senior Subordinated Notes due 2007 outstanding as of September 30, 1999 reduced from $240.0 million to $144.0. We have not paid, and do not have any present intention to commence payment of, cash dividends on our common stock. 19 We expect that ongoing requirements for debt service, capital expenditures and product development activities will be funded by internally-generated cash flow and availability under our revolving credit facility. We may also use cash to fund part or all of the cost of future acquisitions. ENVIRONMENTAL MATTERS Subsequent to the acquisition of Amphenol from Allied Signal 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 $30.0 million and 100% of the costs in excess of $30.0 million. At September 30, 1999, approximately $17.2 million of costs that have been incurred are covered by this agreement. We do not believe that the costs associated with resolution of these or any other environmental matters will have a material adverse effect on our financial condition or results of operations. 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. We are in the process of evaluating the effect this new standard will have on our financial statements. We are required to adopt FAS 133, as amended by FAS 137, beginning January 1, 2001. INFORMATION SYSTEMS AND THE YEAR 2000 The Year 2000 issue is primarily the result of computer programs using a two digit format, as opposed to four digits, to indicate the year. Such computer systems will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to a disruption in the operation of such systems. In 1996, we began a systematic review of all of our business information systems to ensure that the systems now in use worldwide will be Year 2000 compliant before the turn of the century. We have established a Year 2000 Program Management Group to provide overall guidance and direction for this compliance mission. We initiated communications to all of our business units focusing on the critical nature of this project and the Program Management Group has continually monitored the progress and status of each business unit. The Program Management Group has focused its efforts on four main areas: - information systems software and hardware; - non-information technology systems; - facilities equipment; and - customer and vendor relationships. We upgraded and replaced existing information systems with Year 2000 compliant versions of software at all principal business units. Our Year 2000 conversion project is completed at all of our business units and we have not experienced any significant impact on our business operations as a result of the conversion process. 20 We do not believe that the Year 2000 issue will have a material adverse effect on our financial condition or results of operations. We operate a number of business units worldwide and have a large supplier base and believe that this will mitigate any adverse impact. Our beliefs and expectations, however, are based on certain assumptions and expectations that ultimately may prove to be inaccurate. Potential sources of risk include: - the inability of principal suppliers to be Year 2000 ready, which could result in delays in product deliveries from such suppliers, - disruption of the product distribution channel, including ports and transportation vendors and - the general breakdown of necessary infrastructure such as electricity supply. We are developing contingency plans to reduce the impact of transactions with non-compliant suppliers and other parties. Although there can be no assurance that multiple business disruptions caused by technology failures can be adequately anticipated, we are identifying various alternatives to minimize the potential risk to our business operations. We estimate the cost for our Year 2000 compliance efforts to be approximately $3.0 million, including the cost of new systems and system upgrades some of which will be capitalized. The cost is being funded through operating cash flows. Our aggregate cost estimate does not include time and costs that may be incurred by us 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 our 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 is between January 1, 1999 and January 1, 2002. We are addressing issues associated with the Euro conversion and although we cannot predict the overall impact of the Euro conversion at this time, we do not expect that the Euro conversion will have a material adverse effect on our financial condition or results of operations. CAUTIONARY STATEMENTS FOR PURPOSES OF FORWARD-LOOKING INFORMATION Statements made by us in written or oral form to various persons, including statements made in this document and other filings with the Securities and Exchange Commission, which we refer to in this prospectus as the "Commission," that are not strictly historical facts are "forward-looking" statements. Such statements should be considered as subject to uncertainties that exist in our operations and business environment. The following includes some, but not all, of the factors or uncertainties that could cause us to fail to conform with expectations and predictions: - A global economic slowdown in any one, or all, of our market segments. - The effects of significant changes in monetary and fiscal policies in the U.S. and abroad including extreme currency fluctuations and unforeseen inflationary pressures. - Rapid and unforeseen price pressure on our products or significant cost increases that cannot be recovered through price increases or productivity improvements. - Increased difficulties in obtaining a consistent supply of basic material like steel, aluminum, copper, gold or plastic resins at stable pricing levels. - Unpredictable difficulties or delays in the development of new product programs. 21 - Significant changes in interest rates or in the availability of financing for us or some of our customers. - Rapid escalation of the cost of regulatory compliance and litigation. - Unexpected government policies and regulations affecting us or our 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 and competencies that we need to achieve our business objectives. - The risks associated with any technological shift away from our 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 our coaxial cable business. - Unforeseen interruptions to our business with our largest customers, distributors and suppliers resulting from, but not limited to, strikes, financial instabilities, computer malfunctions or inventory excesses. 22 BUSINESS GENERAL We are 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 our products are: - communication systems for the converging technologies of voice, video and data communications; - commercial and military aerospace electronics applications; and - industrial factory automation equipment and automotive and mass transportation applications. We focus on optimizing our mix of higher margin, higher growth application-specific products in our product offerings and maintaining continuing programs of productivity improvement. As a result of these initiatives, our operating profit margin has increased from 13.5% in fiscal year 1993 to 15.6% for the twelve months ended September 30, 1999. For the twelve months ended September 30, 1999 we reported net sales, operating profit and net income of $974.8 million, $151.8 million and $38.6 million, respectively. The table below summarizes information regarding our primary markets and end applications for our products:
COMMERCIAL AND MILITARY AEROSPACE AND OTHER MILITARY ELECTRONICS INDUSTRIAL, TRANSPORTATION COMMUNICATIONS APPLICATIONS AND OTHER ---------------------------- ---------------------------- ---------------------------- PERCENTAGE 59% (including 24% for the 20% 21% OF SALES* cable television market) PRIMARY Voice Military and Commercial Factory Automation END - wireless handsets and Aircraft Instrumentation Systems APPLICATIONS personal communication - avionics Automobile Systems devices - engine controls Mass Transportation Systems - base stations and other - flight controls Oil Exploration wireless infrastructure - entertainment systems Video Missile Systems - cable television coaxial Battlefield Communications cables, connectors and set Satellite and Space Station top converters Programs Data - cable modems - personal computers and related peripherals
- ------------------ *For the nine months ended September 30, 1999. We design and manufacture connectors and interconnect systems which are used primarily to conduct electrical and optical signals for a wide range of sophisticated electronic applications. We believe, based primarily on published market research, that we are one of the largest connector manufacturers in the world. We have 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, we also 23 believe that we are 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. We are 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. We believe 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 32% in 1998. Industry analysts estimate that the total sales for the industry were approximately $34 billion in 1998. Our Times Fiber subsidiary is the world's second largest producer of coaxial cable for the cable television market. We believe that our 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, our Times Fiber unit was the first to standardize a coaxial cable with a 1 GHZ bandwidth, and all of its coaxial cable presently has that bandwidth capability. Our 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. We are also a major supplier of coaxial cable to the developing international cable television markets. In addition, we have developed coaxial cable products, in conjunction with connector products, used in the infrastructure for wireless communication systems. We are a global manufacturer employing advanced manufacturing processes. We manufacture and assemble our products at facilities in North America, South America, Europe, Asia and Australia. We sell our connector products through our own global sales force and independent manufacturers' representatives to thousands of OEMs in 52 countries throughout the world as well as through a global network of electronics distributors. We sell our coaxial cable products primarily to cable television operators and to telecommunication companies who have entered the broadband communications market. For the first nine months of 1999, approximately 57% of our net sales were in North America, 27% were in Europe and 16% were in Asia and other countries. We implement our product development strategy through product design teams and collaboration arrangements with customers which result in our obtaining approved vendor status for our customers' new products and programs. We seek to have our products become widely accepted within the industry for similar applications and products manufactured by other potential customers, which we believe will provide additional sources of future revenue. By developing application-specific products, we have decreased our exposure to standard products which generally experience greater pricing pressure. In addition to product design teams and customer collaboration arrangements, we use key account managers to manage customer relationships on a global basis such that we can bring to bear our total resources to meet the worldwide needs of our multinational customers. We are also focused on making strategic acquisitions in some markets to further broaden and enhance our product offerings and expand our global capabilities. Management and partnerships affiliated with KKR purchased 75% of our Class A common stock in May 1997 through the Recapitalization. KKR, through its affiliates, owned 73.7% of our Class A common stock as of November 12, 1999. No existing stockholders, including management and partnerships affiliated with KKR will sell shares in this offering. After the offering, on a pro forma basis, KKR, through its affiliates, will own approximately 63.9% of our Class A common stock. 24 COMPETITIVE STRENGTHS LEADER IN GROWING MARKET SEGMENTS We serve diverse markets within the connector industry such as the worldwide communications, aerospace, industrial and automotive markets and growing segments within these markets. We are a leader in the design, manufacture and marketing of connector and interconnect systems in the rapidly growing and converging markets of voice, video and data communications. For instance, we have a broad product offering of communications-related connector and interconnect products used in base stations and handheld sets in wireless communications, and interconnect acceptor devices used in smart card systems. We are also a leader in developing coaxial cable products for cable television systems; we have been one of the technological leaders in expanding the bandwidth characteristics of coaxial cable so as to permit greater channel capacity for offering enhanced voice, video and data communications. We have also developed interconnect technology for sophisticated military and commercial avionics applications as well as for use in the international Space Station Program. In addition, we have pioneered the development of interconnect products for automotive safety systems such as airbags and pretensioner seatbelts and have been an innovator in the development of motion control connector products for factory automation. CLOSE RELATIONSHIPS WITH MAJOR OEMS Due in part to our over 65 year history in the connector business and our reputation for innovative, high quality interconnection products, we have developed close relationships with many of our OEM customers in our various product segments. To this end, we have achieved preferred supplier designations from many OEMs, enabling us to work closely with these OEMs through product design teams and collaborative arrangements to design and manufacture application-specific products. Our key account managers enhance our role as a supplier of application specific products for OEMs by directing customer relationships on a global basis and bringing to bear our global resources to satisfy the worldwide needs of our multinational OEMs. GLOBAL PRESENCE Approximately 48% of our sales for the nine months ended September 30, 1999 were outside the United States. We have 48 manufacturing and assembly operations on five continents. Our products are sold through our global sales force and independent manufacturers' representatives to thousands of OEMs in 52 countries throughout the world as well as through a network of electronic distributors. Our global presence enables us to serve the expanding global needs and requirements of our existing multinational and international OEM customers and to position ourselves to develop new customer relationships with other multinational and international OEMs. We believe that having a local presence in foreign markets in which our OEM customers operate is an important factor in our ability to provide high quality products on a timely and efficient basis. Moreover, we attain important operational advantages by developing and sharing "best practices" across our international design and manufacturing network. EXTENSIVE PRODUCT LINE Through our advanced technological and design capabilities, we have developed an extensive line of interconnect products for our customers worldwide which resulted in sales of approximately 85,000 stock keeping units in 1998. By offering a broad array of high quality products, we strive to provide highly-engineered, reliable and value-added solutions for all of our customers' interconnection needs. For example, based on our position as the leading supplier in the high performance environmental connector market, we performed certain research and development for, and are now producing, a family of connectors comprising approximately 1,000 stock keeping units for use in the international 25 Space Station Program. We believe that the breadth of our product line combined with our global presence is an important competitive advantage in an environment in which many OEMs and other customers are reducing the size of their supplier bases. BROAD CUSTOMER BASE Our products are used in a wide variety of applications at over 10,000 customer locations worldwide. Our largest commercial customer accounted for approximately 5% of our net sales for the nine months ended September 30, 1999. The U.S. government and its subcontractors accounted for 7% of our net sales for the nine months ended September 30, 1999; however, we participate across a broad spectrum of defense programs and believe that no single program accounted for more than 2% of those net sales. Our products are also sold to additional customer locations through eight of the 10 largest (based on sales) U.S. electronics distributors, which we believe is an important competitive advantage in effectively marketing our products. By servicing a broad array of customers in a variety of different industries and countries, we strive to develop opportunities to cross-market products and technologies. STRONG MANAGEMENT TEAM Our senior management team has successfully led Amphenol through rapid changes in the connector and interconnect industry. This management team has focused on solidifying our position as a leading provider of connector and interconnect technology in our core markets. Our management team has been working together since 1987 and our managers have significant experience in our industry. BUSINESS STRATEGY FOCUS ON RAPIDLY GROWING COMMUNICATIONS SEGMENT We intend to capitalize on the convergence in the communications sector of voice, video and data technologies. The growth in recent years of mobile communications and Internet utilization has been substantial. We believe, however, that both technologies are in their infancy in terms of market potential. For example, it is estimated that mobile telephone subscribers will increase from the 1998 level of 280 million to 700 million by 2002. We will continue to aggressively pursue infocom opportunities through the development of new application-specific products to serve this expanding market. For instance, we have developed a broad range of radio frequency connector products and interconnect systems for the wireless communications market. Our technology for smart card acceptor devices and other connector components are used in many of the handheld cellular telephones in Europe and elsewhere. EXPAND SALES OF BROADBAND PRODUCTS We believe that the increasing demand for enhanced services from existing cable television systems and the relatively low penetration rate for cable television in countries outside of the United States provides significant opportunity for future growth of coaxial cable and other broadband interconnect products. For example, the demands of the digital age for high-speed Internet access, video on demand, specialized programming, etc., all place significant emphasis on expanded bandwidth for network delivery systems. In addition, it is estimated that in 1998 only 31% of the television households in Europe, 17% of such households in Asia and 14% of such households in Latin America subscribed to some form of multichannel television service as compared to an estimated subscription rate of 66% in the United States. Cable system developments are currently planned in a number of different countries, including large portions of Europe, Asia and Latin America. We believe that we are well positioned to take advantage of these opportunities because we are one of the world's leading producers of coaxial 26 cable and broadband interconnect products and because we have extensive relationships with many of the multinational cable operators that are upgrading and expanding in the domestic and international markets. DEVELOP APPLICATION-SPECIFIC PRODUCTS FOR OEMS We seek to expand the scope and number of preferred supplier designations and application-specific assignments we have with OEM customers. We work closely with our network of OEM customers at the design stage to create and manufacture innovative connector solutions to meet our customers' specific interconnection needs. Our application-specific products designed and manufactured for OEMs in this manner generally have higher value-added content than our other interconnection products and have been developed across all of our product lines. In addition to developing further our relationship with these OEMs and providing a source of high value-added sales, this product development strategy has a number of important ancillary benefits. For instance, once an application- specific product has been developed for a specific OEM customer, such new product often becomes widely accepted in the industry for similar applications and products manufactured by other potential customers, thereby providing additional sources of future revenue. EXPAND PRODUCT LINES Our product lines encompass market segments comprising approximately 50% of the $34 billion connector industry. We have broad product lines for the markets we serve; as an example, in 1998 our sales included approximately 85,000 stock keeping units. We continuously strive to expand our product lines in order to become a primary source supplier of interconnect solutions for many of our customers. By expanding our product lines, we intend to leverage our extensive customer relationships to cross-sell additional connector products. For example, we developed and are now producing a broad line of radio frequency coaxial and fiber optic connectors for the cable television industry, which we market to our large base of existing coaxial cable customers. Moreover, in an environment in which many OEMs and other customers are reducing the size of their supplier bases, we believe that the expansion of our product lines will further solidify our importance to existing customers and enable us to effectively market products to new customers. EXPAND GLOBAL PRESENCE We intend to further expand our global manufacturing, sales and service operations to better serve our existing client base, penetrate developing markets and establish new customer relationships. As our multinational OEM customers expand their international operations to take advantage of developing markets and the lower manufacturing and labor costs of such markets, we intend to similarly expand our international capabilities in order to provide just-in-time facilities near these customers. We believe that this type of international expansion will enable us to take advantage of the lower manufacturing costs in some countries. We have established low-cost manufacturing and assembly facilities in the three major geographical markets of the Americas, Europe and Asia. PURSUE STRATEGIC ACQUISITIONS AND INVESTMENTS We intend to continue to pursue strategic acquisitions that complement our existing business and further expand our product lines and technological capabilities. We believe that the fragmented nature of the connector industry provides significant opportunities for future strategic acquisitions. Furthermore, we believe that we can improve the profitability of the acquired companies through economies of scale. We believe that this offering should position us to more effectively capitalize on acquisition opportunities. Acquisition transactions are typically subject to numerous conditions, including due diligence investigation, Board approval and negotiation of a definitive purchase agreement. In evaluating acquisition targets, we consider, among other things, the target's competitive 27 market position, management team and growth position. At any time, we may have one or more offers outstanding and may have executed one or more non-binding letters of intent. In view of that fact that letters of intent are non-binding and subject to various conditions, we cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by a letter of intent will be consummated. BUSINESS SEGMENTS The following table sets forth the dollar amounts of our net sales for our 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."
DECEMBER 31, SEPTEMBER 30, ------------------------------ ------------------- 1996 1997 1998 1998 1999 -------- -------- -------- -------- -------- (IN THOUSANDS) NET SALES BY BUSINESS SEGMENT: Interconnect products and assemblies.... $585,033 $679,887 $718,109 $535,654 $563,085 Cable products.......................... 191,188 204,461 200,768 149,847 178,374 -------- -------- -------- -------- -------- TOTAL..................................... $776,221 $884,348 $918,877 $685,501 $741,459 ======== ======== ======== ======== ======== NET SALES BY GEOGRAPHIC AREA: United States operations................ $397,023 $462,349 $499,891 $378,349 $383,518 International operations (1)............ 379,198 421,999 418,986 307,152 357,941 -------- -------- -------- -------- -------- TOTAL..................................... $776,221 $884,348 $918,877 $685,501 $741,459 ======== ======== ======== ======== ========
- ------------------------ (1) Includes international coaxial cable sales, which are primarily export sales. INTERCONNECT PRODUCTS AND ASSEMBLIES. We produce 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. We design and produce 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. We also design and produce a broad range of radio frequency connector products used in telecommunications, computer and office equipment, instrumentation equipment and local area networks. Our radio frequency connectors are used in base stations, hand held sets and other components of cellular and personal communications networks. We have also developed a broad line of radio frequency connectors for coaxial cable for full service cable television/telecommunication networks. We believe, based primarily on published market research, that we are the largest supplier of 28 circular, military-specification connectors. Such connectors require superior performance and reliability under conditions of stress and in hostile environments. High performance environmental connectors are generally used to interconnect electronic and fiber optic systems in sophisticated aerospace, military, commercial and industrial equipment. These applications present demanding technological requirements in that the connectors can be subject to rapid and severe temperature changes, vibration, humidity and nuclear radiation. Frequent applications of these connectors include aircraft, guided missiles, radar, military vehicles, equipment for spacecraft, energy, medical instrumentation and geophysical applications and off-road construction equipment. We also design and produce 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. We also design and produce highly-engineered cable assemblies. Such assemblies are specially designed by us in conjunction with OEM customers for specific applications, primarily for computer, wired and wireless communication systems and office equipment applications. The cable assemblies utilize our connector and cable products as well as components purchased from others. CABLE PRODUCTS. We design, manufacture and market coaxial cable primarily for use in the cable television industry. We manufacture 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 our 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 we believe that for the foreseeable future will continue to adopt, a cable system using both fiber optic cable and coaxial cable. Such systems combine the advantages of fiber optic cable in transmitting clear signals over a long distance without amplification, with the advantages of coaxial cable in ease of installation, low cost and compatibility with the receiving components of the customer's communications devices. We believe that while system operators are likely to increase their use of fiber optic cable for the trunk and feeder portions of the cable systems, there will be an ongoing need for high capacity coaxial cable for the local distribution and street-to-the-home portions of the cable system. U.S. cable system designs are increasingly being employed in international markets where cable television penetration is low. For example, it is estimated that in 1998 only 31% of the television households in Europe subscribed to some form of multichannel television service as compared to an estimated subscription rate of 66% in the U.S. The estimated subscription rates in the Asian and Latin American markets are even lower at approximately 15% and 14%, respectively. In terms of television households, it is estimated that there are 256 million television households in Europe, 453 million in Asia and 96 million in Latin America. This compares to an estimated 96 million television households in the U.S. In 1998, we had sales of coaxial cable in approximately 50 countries, and we believe the development of cable television systems in international markets presents a significant opportunity to increase sales of our coaxial cable products. 29 We are also a leading producer of flat-ribbon cable, a cable made of wires assembled side by side such that the finished cable is flat. Flat-ribbon cable is used to connect internal components in systems with space and component configuration limitations. The product is used in computer and office equipment components as well as in a variety of telecommunications applications. INTERNATIONAL OPERATIONS We believe that our global presence is an important competitive advantage as it allows us to provide quality products on a timely and worldwide basis to our multinational customers. Approximately 46% of our sales for the year ended December 31, 1998 were outside the United States. Approximately 60% of such international sales were in Europe. We have manufacturing and assembly facilities in Germany, United Kingdom, France, Sweden, the Czech Republic, Estonia and sales offices in most European markets. Our European operations generally have strong positions in their respective local markets. Local operations coordinate product design and manufacturing responsibility with our other operations around the world. The balance of our international activities are located primarily in the Far East, which includes manufacturing facilities in Japan, Taiwan, People's Republic of China, Korea and India, and Canada, Mexico, Brazil and Australia. Our manufacturing and assembly facilities generally serve the respective local markets. In addition, we have low cost manufacturing and assembly operations in Mexico, the People's Republic of China, the Czech Republic, Estonia and Scotland to serve regional and world markets. CUSTOMERS Our 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 7% of sales for the nine months ended September 30, 1999; however we participate across a broad spectrum of government programs and believe that no single program accounted for more than 2% of those net sales. We sell our products at over 10,000 customer locations worldwide. Our 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. We have focused our global resources to position ourselves to compete effectively in this environment. We have concentrated our 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. Our strategy is to provide a broad selection of products in the areas in which we compete. We have achieved a preferred supplier designation from many of our OEM customers. Our sales to distributors represented approximately 27% of our 1998 sales. Our recognized brand names including "Amphenol," "Times Fiber," "Tuchel," "Socapex," "Sine," "Spectra-Strip," "Pyle-National," "Matrix" and "Kai Jack" together with our strong connector design-in position (products that are specified in the plans and qualified by the OEM), enhance our ability to reach the secondary market through our network of distributors. We believe that our distributor network represents a competitive advantage. MANUFACTURING We employ advanced manufacturing processes including molding, stamping, plating, turning, extruding, die casting and assembly operations as well as proprietary process technology for flat-ribbon 30 and coaxial cable production. Our 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 our manufacturing facilities are certified to the ISO9000 series of quality standards. We employ a global manufacturing strategy to lower our production costs and to improve service to customers. We source our 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, we have established just-in-time facilities near major customers. Our policy is to maintain strong cost controls in our manufacturing and assembly operations. We have undertaken programs to rationalize our production facilities, reduce expenses and maximize the return on capital expenditures. The programs to improve productivity are ongoing. We purchase a wide variety of raw materials for the manufacture of our 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. We are not dependent upon any one source for raw materials, or if one source is used we attempt to protect ourselves through long-term supply agreements. RESEARCH AND DEVELOPMENT Our research, development and engineering expenditures for the creation and application of new and improved products and processes were $17.7 million, $15.3 million and $14.6 million (excluding customer sponsored programs representing expenditures of $0.5 million, $0.2 million and $0.9 million) for 1998, 1997 and 1996, respectively. Our 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. We continue to focus our research and development efforts primarily on those product areas that we believe have the potential for broad market applications and significant sales within a one-to-three year period. TRADEMARKS AND PATENTS We own a number of active patents worldwide. While we consider our patents to be valuable assets, we do not believe that our competitive position is dependent on patent protection or that our operations are dependent on any individual patent. We regard our trademarks "Amphenol," "Times Fiber," "Tuchel," "Socapex," "Sine," "Spectra-Strip," "Pyle-National," "Matrix" and "Kai Jack" to be of value in our businesses. We have exclusive rights in all our major markets to use these registered trademarks. COMPETITION We encounter competition in substantially all areas of our business. We compete 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 we do, as well as medium to small companies. In the area of coaxial cable for cable television, we believe that we and CommScope are the primary providers of such cable; however, CommScope is larger than us in this market. In addition, we face competition from other companies that have concentrated their efforts in one or more areas of the coaxial cable market. 31 BACKLOG We estimate that our backlog of unfilled orders was $227.7 million at September 30, 1999 and $221.5 million at December 31, 1998. Orders typically fluctuate from quarter to quarter based on customer demands and general business conditions. Unfilled orders may be canceled prior to shipment of goods; however, 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 our 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 September 30, 1999, we had approximately 7,700 full-time employees worldwide. Of these employees, approximately 5,600 were hourly employees, of which approximately 3,000 were represented by labor unions, and the remainder were salaried. We had a one week strike in October 1995 at our Sidney, New York facility relating to the renewal of the labor contract at that facility with the International Association of Machinists and Aerospace Workers. We have 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 our plant in Chatham, Virginia, our primary plant for the production of coaxial cable. We believe that we have a good relationship with our unionized and non-unionized employees. 32 MANAGEMENT The following table sets forth the name, age as of November 12, 1999 and position of our directors or executive officers.
NAME AGE POSITION - ---- -------- ------------------------------------------ Martin H. Loeffler........................ 55 Chairman of the Board, Chief Executive Officer, President and Director 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 Andrew M. Clarkson........................ 62 Director G. Robert Durham.......................... 70 Director Henry R. Kravis........................... 55 Director George R. Roberts......................... 56 Director Michael W. Michelson...................... 48 Director Marc S. Lipschultz........................ 30 Director
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. ANDREW M. CLARKSON has been a Director of AutoZone, Inc. since 1986, Chairman of the Finance Committee of AutoZone, Inc. since 1995, Secretary from 1988 to 1993 and Treasurer from 1990 to 1995. G. ROBERT DURHAM retired on June 1, 1996 from Walter Industries, Inc. having served as Chairman and Chief Executive Officer since 1995 and President and Chief Executive Officer since 1991. He formerly served as Chairman, President and Chief Executive Office of Phelps Dodge Corporation. He is a Director of Earle M. Jorgenson Company, the FINOVA Group Inc. and MONY Group Inc. HENRY R. KRAVIS is a Founding Partner of KKR and since January 1996 a Managing Member of the Executive Committee of the limited liability company which serves as the general partner of Kohlberg Kravis Roberts & Co., L.P. He is also a Director of Accuride Corporation, Borden, Inc., The Boyds Collection, Ltd., Evenflo Company Inc., The Gillette Company, IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., Owens-Illinois, Inc., PRIMEDIA Inc., Regal Cinemas, Inc., Safeway, Inc., Sotheby's Holdings, Inc., Spalding Holdings Corporation, and TI Group plc. Messrs. Kravis and Roberts are first cousins. GEORGE R. ROBERTS is a Founding Partner of KKR and since January 1996 a Managing Member of the Executive Committee of the limited liability company which serves as the general partner of Kohlberg Kravis Roberts & Co., L.P. He is also a Director of Accuride Corporation, Borden, Inc., The Boyds Collection, Ltd., Evenflo Company Inc., IDEX Corporation, KinderCare Learning Center, Inc., 33 KSL Recreation Group, Inc., Owens-Illinois, Inc., PRIMEDIA Inc., Regal Cinemas, Inc., Safeway, Inc. and Spalding Holdings Corporation. Messrs. Kravis and Roberts are first cousins. MICHAEL W. MICHELSON is member of the limited liability company which serves as the General Partner of KKR since 1996 and a General Partner of KKR since 1987. He is a Director of AutoZone, Inc., Owens-Illinois, Inc. and Promus Hotel Corporation. MARC S. LIPSCHULTZ has been an Executive at KKR since 1995. From 1993 to 1995, Mr. Lipschultz attended Harvard Business School. Prior thereto, he was an investment banker with Goldman, Sachs & Co. He is also a Director of The Boyds Collection, Ltd., Evenflo Company Inc. and Spalding Holdings Corporation. 34 DESCRIPTION OF CAPITAL STOCK We are authorized to issue 40 million shares of the Class A common stock and no other shares of common stock or preferred stock. As of September 30, 1999, there were approximately 17.9 million shares of the Class A common stock issued and outstanding. The following is a summary of some of the rights and privileges pertaining to the Class A common stock. For a full description of the Class A common stock, reference is made to our Amended and Restated Certificate of Incorporation and to our By-Laws. Holders of the Class A common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. Approval of matters brought before the stockholders requires the affirmative vote of a majority of shares present and voting, except as otherwise required by law and except that the vote of 80% or more of outstanding shares entitled to vote is required to modify the provisions of the Amended and Restated Certificate of Incorporation relating to the election of directors for staggered terms, the total number of directors and independent directors, removal of directors, and the provision requiring an 80% stockholder vote for certain actions. Director nominations may be made by stockholders in accordance with our By-Laws, as amended, not less than 90 days in advance of the meeting at which the election is to occur. Holders of the Class A common stock are entitled to participate in dividends as and when declared by the Board out of funds legally available therefor. Our ability to pay cash dividends is subject to certain restrictions. See "Price Range of Class A Common Stock and Dividend Policy." Subject to the rights of creditors and holders of preferred stock, any holders of Class A common stock are entitled to share ratably in a distribution of our assets upon any liquidation, dissolution or winding-up of Amphenol. Our directors serve in three different classes of approximately equal numbers, and the term of only one class expires at each annual meeting. Before the expiration of their terms, our directors may be removed by the affirmative vote of the majority of the stockholders entitled to vote for the election of directors but only for cause. The transfer agent and registrar for the Class A common stock is EquiServe Limited Partnership. 35 UNDERWRITING Subject to the terms and conditions contained in an underwriting agreement, dated December 7, 1999, the underwriters named below, who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc. have severally agreed to purchase from us the number of shares set forth opposite their names below:
NUMBER OF SHARES ---------------- UNDERWRITERS: Donaldson, Lufkin & Jenrette Securities Corporation......... 866,250 Lehman Brothers Inc......................................... 618,750 Merrill Lynch, Pierce, Fenner & Smith Incorporated...................................... 618,750 Salomon Smith Barney Inc.................................... 371,250 Cazenove Inc................................................ 137,500 The Shemano Group, Inc...................................... 137,500 --------- Total....................................................... 2,750,000
The underwriting agreement provides that the obligations of the underwriters to purchase and accept delivery of the shares included in this offering are subject to approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to purchase and accept delivery of all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares. The underwriters propose to initially offer some of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to certain dealers at the public offering price less a concession not in excess of $2.08 per share. The underwriters may allow, and these dealers may re-allow, a concession not in excess of $0.10 per share on sales to some other dealers. After the initial offering of the shares to the public, the representatives of the underwriters may change the public offering price and these concessions. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. The following table shows the underwriting fees that we will pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of Class A common stock.
PAID BY US ------------------------- FULL NO EXERCISE EXERCISE ----------- ----------- Per share........................................... $ 3.47 $ 3.47 Total............................................... $9,542,500 $10,973,875
We will pay the offering expenses, estimated to be $645,000. We have granted to the underwriters an option, exercisable for 30 days from the date of the underwriting agreement, to purchase up to 412,500 additional shares at the public offering price less the underwriting fees. The underwriters may exercise this option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the underwriters exercise this option, each underwriter will become obligated, subject to some conditions, to purchase a number of additional shares approximately proportionate to that underwriter's initial purchase commitment. 36 We have agreed to indemnify the underwriters against some civil liabilities, including liabilities under the Securities Act of 1933 or to contribute to payments that the underwriters may be required to make in respect of any of these liabilities. Each of Amphenol, its executive officers and directors and some of its stockholders has agreed that, for a period of 90 days from the date of this prospectus, they will not, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for Class A common stock; or - enter into any swap or other arrangements that transfers all or a portion of the economic consequences associated with the ownership of any Class A common stock. Each of the above transfer restrictions will apply regardless of whether a covered transaction is to be settled by the delivery of Class A common stock or other securities, in cash or otherwise. During the 90-day period, Amphenol may grant stock options pursuant to existing stock option plans, issue shares upon the exercise of an option or warrant or the conversion of some securities and issue shares as consideration for some acquisitions made by Amphenol or its subsidiaries. In addition, during the 90 day period, we have agreed not to file any registration statement with respect to, and each of our executive officers and directors and some of our stockholders has agreed not to make any demand for, or exercise any right with respect to, the registration of any shares of Class A common stock or any securities convertible into or exercisable for Class A common stock without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of Class A common stock included in this offering in any jurisdiction where action for that purpose is required. The shares included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisement in connection with the offer and sale of any of these shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of such jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relating to the offering of the Class A common stock and the distribution of this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy any shares of Class A common stock included in this offering in any jurisdiction where that would not be permitted or legal. The underwriters or their affiliates have provided or may in the future provide investment banking or other financial advisory services to KKR and its affiliates and/or to us and our affiliates in the ordinary course of business, for which they have received and are expected to receive customary fees and expenses. In connection with this offering, some underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A common stock. Specifically, the underwriters may overallot this offering, creating a syndicate short position. In addition, the underwriters may bid for and purchase shares of Class A common stock in the open market to cover syndicate short positions or to stabilize the price of the Class A common stock. These activities may stabilize or maintain the market price of the Class A common stock above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time. 37 LEGAL MATTERS The validity of the shares of Class A common stock offered hereby will be passed upon for us by Simpson Thacher & Bartlett, New York, New York and for the Underwriters by Latham & Watkins, New York, New York. Certain partners of Simpson Thacher & Bartlett and Latham & Watkins, members of their families, related persons and others, have an indirect interest, through limited partnerships, who are investors in KKR 1996 Fund L.P., in less than 1% of the Class A common stock. In addition, Simpson Thacher & Bartlett and Latham & Watkins have in the past provided, and may continue to provide, legal services to KKR and its affiliates, including KKR 1996 Fund L.P. EXPERTS The consolidated financial statements as of December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998 included and incorporated by reference in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is included and incorporated by reference herein, and have been so included and incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The 1996 financial statements included and incorporated in this prospectus by reference to Amphenol's Form 10-K for the year ended December 31, 1998, have been so included and incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly, and current reports, proxy statements, and other information with the Commission. We have also filed with the Commission a registration statement on Form S-3 to register the Class A common stock being offered in this prospectus. This prospectus, which forms part of the registration statement, does not contain all of the information included in the registration statement. For further information about us and the Class A common stock offered in this prospectus, you should refer to the registration statement and its exhibits. The Commission allows us to "incorporate by reference" the information we file with them, which means we can disclose important information to you by referring you to those documents. The information included in the following documents is incorporated by reference and is considered to be a part of this prospectus. The most recent information that we file with the Commission automatically updates and supersedes older information. We have previously filed the following documents with the Commission and are incorporating them by reference into this prospectus: 1. Our Annual Report on Form 10-K and 10-K/A for the year ended December 31, 1998; and 2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999. Until we have sold all of the shares of the Class A common stock which we are offering for sale under this prospectus, we will also incorporate by reference all documents which we may file in the future pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act. We will provide without charge to each person who receives a prospectus, including any beneficial owner, a copy of the information that has been incorporated by reference in this prospectus. If you would like to obtain this information from us, please direct your request, either in writing or by telephone, to the Secretary, Amphenol Corporation, 358 Hall Avenue, Wallingford, Connecticut 06492, telephone (203) 265-8900. 38 The registration statement can also be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the Registration Statement is publicly available through the Commission's site on the Internet's World Wide Web, located at: http://www.sec.gov. Following the offering, our future public filings are expected to be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. 39 (This page has been left intentionally blank.) 40 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF AMPHENOL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS (AUDITED): Independent Auditors' Report (Deloitte & Touche LLP)...... F-2 Report of Independent Accountants (PricewaterhouseCoopers LLP).................................................... F-3 Consolidated Statement of Income for the Three Years Ended December 31, 1998....................................... F-4 Consolidated Balance Sheet as of December 31, 1998 and 1997.................................................... F-5 Consolidated Statement of Changes in Stockholders Equity (Deficit) for the Three Years Ended December 31, 1998... F-6 Consolidated Statement of Cash Flow for the Three Years Ended December 31, 1998................................. F-7 Notes to Consolidated Financial Statements................ F-8 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED): Condensed Consolidated Balance Sheet as of September 30, 1999 and December 31, 1998.............................. F-23 Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1999 and 1998....... F-24 Condensed Consolidated Statement of Changes in Shareholders' Deficit for the Nine Months Ended September 30, 1999...................................... F-25 Condensed Consolidated Statement of Changes in Shareholders' Deficit for the Nine Months Ended September 30, 1998...................................... F-26 Condensed Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 1999 and 1998........... F-27 Notes to Condensed Consolidated Financial Statements...... F-28
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Amphenol Corporation We have audited the accompanying consolidated balance sheet of Amphenol Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in shareholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such 1998 and 1997 consolidated financial statements present fairly, in all material respects, the financial position of Amphenol Corporation and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Stamford, Connecticut January 19, 1999 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Amphenol Corporation In our opinion, the consolidated statement of income, of changes in shareholders' equity and of cash flow for the year ended December 31, 1996 present fairly, in all material respects, the results of operations and cash flows of Amphenol Corporation and its subsidiaries for the year ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Amphenol Corporation for any period subsequent to December 31, 1996. /s/ PricewaterhouseCoopers LLP Hartford, Connecticut January 14, 1997 F-3 CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------------- 1998 1997 1996 ----------- ----------- ----------- Net sales............................................. $ 918,877 $ 884,348 $ 776,221 Costs and expenses: Cost of sales, excluding depreciation and amortization...................................... 601,930 572,092 494,689 Depreciation and amortization expense............... 23,553 20,428 17,846 Selling, general and administrative expense......... 131,966 125,064 114,746 Amortization of goodwill............................ 11,701 11,316 10,962 ----------- ----------- ----------- Operating income...................................... 149,727 155,448 137,978 Interest expense...................................... (81,199) (64,713) (24,617) Expenses relating to Merger and Recapitalization (Note 2).................................................. (2,500) Other expenses, net................................... (4,545) (1,061) (3,696) ----------- ----------- ----------- Income before income taxes and extraordinary item..... 63,983 87,174 109,665 Provision for income taxes............................ (27,473) (35,910) (42,087) ----------- ----------- ----------- Income before extraordinary item...................... 36,510 51,264 67,578 Extraordinary item: Loss on early extinguishment of debt, net of income taxes of $14,728 (Notes 2 and 3).................. (24,547) ----------- ----------- ----------- Net income............................................ $ 36,510 $ 26,717 $ 67,578 =========== =========== =========== Net income per common share: Income before extraordinary item.................... $ 2.07 $ 1.84 $ 1.45 Extraordinary loss.................................. (.88) ----------- ----------- ----------- Net income.......................................... $ 2.07 $ .96 $ 1.45 =========== =========== =========== Average common shares outstanding..................... 17,663,212 27,806,260 46,649,541 Net income per common share--assuming dilution: Income before extraordinary item.................... $ 2.03 $ 1.83 $ 1.45 Extraordinary loss.................................. (.88) ----------- ----------- ----------- Net income.......................................... $ 2.03 $ .95 $ 1.45 =========== =========== =========== Average common shares outstanding--assuming dilution............................................ 17,942,397 28,002,977 46,720,900
See accompanying notes to consolidated financial statements. F-4 CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, --------------------- 1998 1997 --------- --------- ASSETS Current Assets: Cash and short-term cash investments...................... $ 3,095 $ 4,713 Accounts receivable, less allowance for doubtful accounts of $1,832 and $1,633.................................... 83,065 70,037 Inventories: Raw materials and supplies................................ 24,806 21,115 Work in process........................................... 114,035 96,833 Finished goods............................................ 45,583 49,062 --------- --------- 184,424 167,010 Prepaid expenses and other assets......................... 17,089 13,020 --------- --------- Total current assets.................................. 287,673 254,780 --------- --------- Land and depreciable assets: Land...................................................... 10,782 10,702 Buildings................................................. 68,426 64,149 Machinery and equipment................................... 237,618 206,525 --------- --------- 316,826 281,376 Less accumulated depreciation............................. (190,047) (169,784) --------- --------- 126,779 111,592 Deferred debt issuance costs................................ 16,783 19,377 Excess of cost over fair value of net assets acquired....... 360,265 339,223 Other assets................................................ 15,901 12,182 --------- --------- $ 807,401 $ 737,154 ========= ========= LIABILITIES & SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable.......................................... $ 67,885 $ 64,255 Accrued interest.......................................... 11,306 11,442 Accrued salaries, wages and employee benefits............. 14,385 14,229 Other accrued expenses.................................... 28,934 27,116 Current portion of long-term debt......................... 1,655 212 --------- --------- Total current liabilities............................. 124,165 117,254 --------- --------- Long-term debt.............................................. 952,469 937,277 Deferred taxes and other liabilities........................ 23,024 25,748 Commitments and contingent liabilities (Notes 3, 7 and 10) Shareholders' Deficit: Class A Common Stock, $.001 par value; 40,000,000 shares authorized; 17,862,328 and 17,532,804 shares outstanding at December 31, 1998 and 1997, respectively............. 18 18 Additional paid-in deficit................................ (499,928) (511,582) Accumulated earnings...................................... 214,861 178,351 Accumulated other comprehensive income (Note 6)........... (7,208) (9,912) --------- --------- Total shareholders' deficit........................... (292,257) (343,125) --------- --------- $ 807,401 $ 737,154 ========= =========
See accompanying notes to consolidated financial statements. F-5 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED ADDITIONAL OTHER TOTAL PAID-IN COMPREHENSIVE TREASURY SHAREHOLDERS' COMMON CAPITAL COMPREHENSIVE ACCUMULATED INCOME STOCK EQUITY STOCK (DEFICIT) INCOME EARNINGS (NOTE 6) AT COST (DEFICIT) -------- ----------- -------------- ------------ -------------- -------- ------------- Balance December 31, 1995.... $47 $ 265,193 $ 84,056 $(5,211) $ 344,085 Comprehensive income: Net income................. [$67,578] 67,578 67,578 --------- Other comprehensive income (loss), net of tax: Unrealized loss on marketable securities............. (1,085) (1,085) Translation adjustments............ 647 647 Minimum pension liability adjustment............. 1,762 1,762 --------- Other comprehensive income................... 1,324 1,324 --------- Comprehensive income......... [$68,902] ========= Purchase of Treasury Stock... $(52,671) (52,671) Amortization of deferred compensation............... 65 65 Stock options exercised...... 167 167 --- ----------- -------- ------- -------- ----------- Balance December 31, 1996.... 47 265,425 151,634 (3,887) (52,671) 360,548 Comprehensive income: Net income................. [$26,717] 26,717 26,717 --------- Other comprehensive income (loss), net of tax: Reclassification adjustment for gain on securities realized in net income............. (3,687) (3,687) Translation adjustments............ (8,147) (8,147) Minimum pension liability adjustment............. 5,809 5,809 --------- Other comprehensive income................... (6,025) (6,025) --------- Comprehensive income......... [$20,692] ========= Stock subscription proceeds................... 532 532 Sale of 13,116,955 shares of Common Stock (Note 2)...... 13 341,028 341,041 Purchase of 40,325,240 shares of Common Stock (Note 2)... (40) (1,048,450) (1,048,490) Fees and other expenses related to the Merger and Recapitalization (Note 2)......................... (17,644) (17,644) Retirement of Treasury Stock...................... (2) (52,669) 52,671 Amortization of deferred compensation............... 186 186 Stock options exercised...... 10 10 --- ----------- -------- ------- -------- ----------- Balance December 31, 1997.... 18 (511,582) 178,351 (9,912) -- (343,125) Comprehensive income: Net income................. [$36,510] 36,510 36,510 --------- Other comprehensive income, net of tax: Translation adjustments............ 2,704 2,704 2,704 --------- Comprehensive income......... [$39,214] ========= Stock subscription proceeds................... 25 25 Deferred compensation........ 180 180 Stock issued in connection with acquisition........... 11,449 11,449 --- ----------- -------- ------- -------- ----------- Balance December 31, 1998.... $18 $ (499,928) $214,861 $(7,208) $ -- $ (292,257) === =========== ======== ======= ======== ===========
- ------------------------------ See accompanying notes to consolidated financial statements. F-6 CONSOLIDATED STATEMENT OF CASH FLOW (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 -------- ----------- -------- Net income.................................................. $ 36,510 $ 26,717 $ 67,578 Adjustments for cash from operations: Depreciation and amortization............................. 35,254 31,744 28,808 Amortization of deferred debt issuance costs.............. 2,749 2,638 691 Net extraordinary charge for write off of deferred debt issuance costs.......................................... 24,547 Non-recurring expenses relating to the Merger and Recapitalization........................................ 2,500 Gain on sale of marketable securities..................... (3,917) Net change in: Accounts receivable..................................... (2,926) (18,261) 7,315 Inventory............................................... (9,229) (17,700) (10,801) Prepaid expenses and other assets....................... (1,788) (2,479) 604 Accounts payable........................................ (257) 15,653 (3,411) Accrued liabilities..................................... (4,251) 18,938 (13,644) Accrued interest........................................ (142) 8,944 (188) Accrued pension and post employment benefits............ (1,102) (4,717) (7,590) Deferred taxes and other liabilities.................... 57 2,607 (970) Other................................................... (1,647) (952) (185) -------- ----------- -------- Cash flow provided by operations............................ 53,228 86,262 68,207 -------- ----------- -------- Cash flow from investing activities: Additions to property, plant and equipment................ (26,340) (24,059) (20,374) Investments in acquisitions and joint ventures............ (32,663) (4,000) (29,461) Proceeds from the sale of marketable securities............. 7,351 -------- ----------- -------- Cash flow used by investing activities...................... (59,003) (20,708) (49,835) -------- ----------- -------- Cash flow from financing activities: Net change in borrowings under revolving credit facilities.............................................. 9,157 (20,461) 26,255 Repurchase of senior notes and subordinated debt.......... (212,479) Payment of fees and other expenses related to Merger and Recapitalization........................................ (59,436) Borrowings under Bank Agreement........................... 750,000 Net change in receivables sold............................ 10,000 Decrease in borrowings under Bank Agreement............... (5,000) (65,000) Proceeds from the issuance of senior subordinated notes... 240,000 Purchase of Amphenol Common Stock......................... (1,048,490) Sale of common stock related to Merger.................... 341,041 Treasury stock repurchases................................ (52,671) -------- ----------- -------- Cash flow provided by (used by) financing activities........ 4,157 (64,825) (26,416) -------- ----------- -------- Net change in cash and short-term cash investments.......... (1,618) 729 (8,044) Cash and short-term cash investments balance, beginning of period.................................................... 4,713 3,984 12,028 -------- ----------- -------- Cash and short-term cash investments balance, end of period.................................................... $ 3,095 $ 4,713 $ 3,984 ======== =========== ======== Cash paid during the year for: Interest.................................................. $ 78,634 $ 53,237 $ 24,180 Income taxes paid, net of refunds......................... 26,024 20,623 54,765
See accompanying notes to consolidated financial statements. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS Amphenol Corporation ("Amphenol" or the "Company") is in two business segments which consist of manufacturing and selling interconnect products and assemblies, and manufacturing and selling cable products. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions have been eliminated in consolidation. CASH AND SHORT-TERM CASH INVESTMENTS Cash and short-term cash investments consist of cash and liquid investments with an original maturity of less than three months. INVENTORIES Inventories are stated at the lower of standard cost, which approximates average cost, or market. The principal components of cost included in inventories are materials, direct labor and manufacturing overhead. DEPRECIABLE ASSETS Property, plant and equipment are carried at cost. Depreciation and amortization of property, plant and equipment are provided on a straight-line basis over the respective asset lives determined on a composite basis by asset group or on a specific item basis using the estimated useful lives of such assets which range from 3 to 12 years for machinery and equipment and 20 to 40 years for buildings. It is the Company's policy to periodically review fixed asset lives. DEFERRED DEBT ISSUANCE COSTS Deferred debt issuance costs are being amortized on the interest method over the term of the related debt and such amortization is included in interest expense. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED The excess of cost over the fair value of net assets acquired (goodwill) is being amortized on the straight-line basis over a period of 40 years. Accumulated amortization was $108,674 and $96,973 at December 31, 1998 and 1997, respectively. Management continually reassesses the appropriateness of both the carrying value and remaining life of goodwill. Such reassessments are based on forecasting F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. INCOME TAXES Deferred income taxes are provided for revenue and expenses which are recognized in different periods for income tax and financial statement purposes. Deferred income taxes are not provided on undistributed earnings of foreign affiliated companies which are considered to be permanently invested. RESEARCH AND DEVELOPMENT Research, development and engineering expenditures for the creation and application of new and improved products and processes were $17,669, $15,313 and $14,550, excluding customer sponsored programs representing expenditures of $523, $214 and $927, for the years 1998, 1997 and 1996, respectively. ENVIRONMENTAL OBLIGATIONS The Company recognizes the potential cost for environmental remediation activities when assessments are made, remedial efforts are probable and related amounts can be reasonably estimated; potential insurance reimbursements are not recorded. The Company regularly assesses its environmental liabilities through reviews of contractual commitments, site assessments, feasibility studies and formal remedial design and action plans. NET INCOME PER COMMON SHARE Net income per common share is based on the net income for the period divided by the weighted average common shares outstanding. Net income per common share assuming dilution assumes the exercise of outstanding, dilutive stock options using the treasury stock method. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments, which are periodically used by the Company in the management of its interest rate and foreign currency exposures, are accounted for on an accrual basis. Income and expense are recorded in the same category as that arising from the related asset or liability. For example, amounts to be paid or received under interest rate swap agreements are recognized as interest income or expense in the periods in which they accrue. NOTE 2--MERGER AND RECAPITALIZATION On May 19, 1997, the Company merged with NXS Acquisition Corp., a wholly owned subsidiary of KKR 1996 Fund L.P., KKR Partners II, L.P., and NXS Associates, L.P., limited partnerships formed at the direction of Kohlberg Kravis Roberts & Co. L.P. ("KKR"). The Merger had the effect of affiliates of KKR investing $341,041 in exchange for 13,116,955 shares, or 75% of the Company's common stock. Such equity proceeds, along with $240,000 of proceeds from the sale of 9 7/8% Senior Subordinated Notes due 2007 and borrowings of $750,000 under a $900,000 bank loan agreement ("Bank Agreement") were used to repurchase 40,325,240 shares of the Company's common stock for $1,048,490, purchase all of the Company's outstanding 10.45% Senior Notes and substantially all of the Company's 12 3/4% Subordinated Debentures for $211,153 and pay fees and expenses of $59,436, including $18,000 paid to KKR and $39,292 relating to the issuance of new debt. The Merger and related transactions have been recorded as a recapitalization ("Merger and Recapitalization"). Expenses of $17,644 related to the repurchase of the Company's common stock have been reflected as a reduction of additional paid-in capital; other expenses of approximately $2,500, primarily relating to the buyout of certain stock options, are reflected in the accompanying Consolidated Statement of Income. In conjunction with the Merger and Recapitalization, the Company recorded the costs associated with early extinguishment of debt of $12,845, net of tax, as an extraordinary item in the accompanying Consolidated Statement of Income. Such costs included the premium associated with redemption of the Company's 10.45% Senior Notes and 12 3/4% Subordinated Debentures and the write off of unamortized deferred debt issuance costs. Supplemental earnings per share for 1997 assuming the Merger and Recapitalization was completed at January 1, 1997, and excluding the impact of related non-recurring expenses, is $1.98 per share. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3--LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, INTEREST RATE AT ------------------- DECEMBER 31, 1998 MATURITY 1998 1997 ----------------- --------- -------- -------- Bank Agreement: Term loan.................................. 7.35% 2000-2006 $680,000 $685,365 Revolving credit facility.................. 7.12% 2004 19,500 Senior subordinated notes.................... 9.875% 2007 240,000 240,000 Notes payable to foreign banks and other debt....................................... 1.0%-21.0% 1999-2004 14,624 12,124 ---------- --------- -------- -------- 954,124 937,489 Less current portion......................... 1,655 212 -------- -------- Total long-term debt......................... $952,469 $937,277 ======== ========
In conjunction with the Merger and Recapitalization, the Company entered into a $900,000 Bank Agreement with a syndicate of financial institutions, comprised of a $150,000 revolving credit facility that expires in the year 2004 and a $750,000 term loan facility--$350,000 (Tranche A) maturing over a seven-year period ending 2004, $200,000 (Tranche B) maturing in 2005 and $200,000 (Tranche C) maturing in 2006. In October 1997, the Company negotiated a significant amendment and restatement to the term loan under the Bank Agreement. The amendment extinguished the Tranche B and C indebtedness with borrowings under a new $375,000 Term Loan Tranche B with required amortization in 2005 and 2006. In conjunction with the amendment and restatement, the Company incurred an extraordinary loss, net of tax, of $11,702 for the write off of unamortized deferred debt issuance costs. At December 31, 1998, the Company had prepaid $70,000 of the original term loan. Availability under the revolving credit facility at December 31, 1998 was $128,478, after reduction of $2,022 for outstanding letters of credit. At December 31, 1998, interest under the Bank Agreement generally accrues at .25% to .75% over prime or 1.50% to 2.0% over LIBOR at the Company's option. The Company also pays certain annual agency and commitment fees. At December 31, 1998, the Company had interest rate protection in the form of swap agreements that effectively fixed the Company's LIBOR interest rate on $450,000 of floating rate bank debt at 5.76%. Such agreements are in effect to the extent that LIBOR remains below 7% for $300,000 of debt and remains below 8% for an additional $150,000 of debt. These agreements expire in July 2002. The Bank Agreement is secured by a first priority pledge of 100% of the capital stock of the Company's direct domestic subsidiaries and 65% of the capital stock of direct material foreign subsidiaries, as defined in the Bank Agreement. The Bank Agreement also requires that the Company satisfy certain financial covenants including interest coverage and leverage ratio tests, and includes limitations with respect to, among other things, (i) incurring debt, (ii) creating or incurring liens, (iii) making other investments, (iv) acquiring or disposing of assets, (v) capital expenditures, and (vi) restricted payments, including dividends on the Company's common stock. The 9 7/8% Senior Subordinated Notes due 2007 are general unsecured obligations of the Company. The notes are subject to redemption at the option of the Company, in whole or in part, beginning in 2002 at 104.938% and declining to 100% by 2005. In addition, at any time prior to 2000, the Company may, at its option, redeem up to $96,000 of the notes at a redemption price of 109.875% with the net cash proceeds of one or more equity offerings. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3--LONG-TERM DEBT (CONTINUED) The maturity of the Company's long-term debt over each of the next five years ending December 31, is as follows: 1999--$1,655; 2000--$16,573; 2001 - -$49,151; 2002--$61,504; 2003--$82,026. NOTE 4--INCOME TAXES The components of income before income taxes and extraordinary item and the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Income before taxes and extraordinary item: United States............................................. $18,725 $45,354 $ 67,889 Foreign................................................... 45,258 41,820 41,776 ------- ------- -------- $63,983 $87,174 $109,665 ======= ======= ======== Current provision: United States............................................. $10,002 $21,857 $ 24,174 Foreign................................................... 17,651 12,611 15,993 ------- ------- -------- 27,653 34,468 40,167 ------- ------- -------- Deferred provision: United States............................................. $ 745 $ 1,407 $ 1,884 Foreign................................................... (925) 35 36 ------- ------- -------- (180) 1,442 1,920 ------- ------- -------- Total provision for income taxes............................ $27,473 $35,910 $ 42,087 ======= ======= ========
At December 31, 1998, the Company had $19,253 of foreign tax loss carryforwards, of which $1,768 expire at various dates through 2003 and the balance can be carried forward indefinitely, and $450 of tax credit carryforwards that expire between the years 1999 and 2011. Accrued income tax liabilities of $5,667 and $8,251 at December 31, 1998 and 1997, respectively, are included in other accrued expenses in the Consolidated Balance Sheet. Differences between the U.S. statutory federal tax rate and the Company's effective income tax rate are analyzed below:
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- U.S. statutory federal tax rate............................. 35.0% 35.0% 35.0% State and local taxes....................................... 2.1 1.4 1.5 Non-deductible purchase accounting differences.............. 6.4 4.5 3.7 Foreign tax provisions (benefit) at rates different from the U.S. statutory rate....................................... 1.4 (2.2) .5 Tax cost (benefit) of foreign dividend income, net of related tax credits....................................... 1.4 3.1 (2.6) Valuation allowance......................................... (.9) .1 (4.1) Other....................................................... (2.5) (.7) 4.4 ---- ---- ---- Effective tax rate.......................................... 42.9% 41.2% 38.4% ==== ==== ====
F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4--INCOME TAXES (CONTINUED) The Company's deferred tax assets and liabilities, excluding a valuation allowance, were comprised of the following:
DECEMBER 31, ------------------- 1998 1997 -------- -------- Deferred tax assets: Accrued liabilities and reserves........................ $ 4,415 $ 5,583 Operating loss carryforwards............................ 7,298 7,214 Foreign tax credit carryforwards........................ 450 348 Employee benefits....................................... 2,221 1,933 ------- ------- $14,384 $15,078 ======= ======= Deferred tax liabilities: Depreciation............................................ $ 7,399 $ 8,031 Prepaid pension costs................................... 6,103 6,984 ------- ------- $13,502 $15,015 ======= =======
A valuation allowance of $9,182 and $9,731 at December 31, 1998 and 1997, respectively, has been recorded which relates primarily to foreign net operating loss carryforwards, tax credits and certain deferred tax deductions for which a tax benefit is less likely than not to be received. The net change in the valuation allowance for deferred tax assets was a reduction of $549 in 1998 and an increase of $1,547 in 1997. The net change in the valuation allowance was principally due to the expiration of tax credits in 1998 and the incurrence of foreign net operating loss carryforwards in 1997. Current and non-current deferred tax assets and liabilities within the same tax jurisdiction are offset for presentation in the Consolidated Balance Sheet. United States income taxes have not been provided on undistributed earnings of international subsidiaries. The Company's intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. Accordingly, the Company believes that any United States tax on repatriated earnings would be substantially offset by U.S. foreign tax credits. The Company is subject to periodic audits of its various tax returns by government agencies; management does not believe that amounts, if any, which may be required to be paid by reason of such audits will have a material effect on the Company's financial position or results of operations. NOTE 5--BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS The Company and its domestic subsidiaries had a number of defined benefit plans covering substantially all U.S. employees. Effective December 31, 1997, the individual U.S. plans were merged into one plan . The information presented below for U.S. plans for 1998 and 1997 is on the basis of the merged plans. Plan benefits are generally based on years of service and compensation. The plans are noncontributory, except for certain salaried employees. Certain foreign subsidiaries have defined benefit F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5--BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) plans covering their employees. The following is a summary of the Company's defined benefit plans funded status as of the most recent actuarial valuations (December 31, 1998 and 1997).
DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------------- ------------------------- ACCUMULATED ASSETS ACCUMULATED ASSETS BENEFITS EXCEED BENEFITS EXCEED EXCEED ACCUMULATED EXCEED ACCUMULATED ASSETS BENEFITS ASSETS BENEFITS ----------- ----------- ----------- ----------- Change in benefit obligation: Benefit obligation at beginning of year..... $ 21,540 $178,982 $ 23,691 $166,535 Service cost................................ 768 3,697 744 3,225 Interest cost............................... 1,450 12,692 1,403 12,358 Plan participants' contributions............ 272 265 Plan amendments............................. 4,797 1,678 Actuarial (gain) loss....................... 762 7,955 (52) 10,819 Settlements and curtailments................ (609) Foreign exchange............................ 1,717 (223) (3,369) (452) Benefits paid............................... (935) (14,538) (877) (14,837) -------- -------- -------- -------- Benefit obligation at end of year........... 25,302 193,634 21,540 178,982 -------- -------- -------- -------- Change in plan assets: Fair value of plan assets at beginning of year...................................... 204,679 178,839 Actual return on plan assets................ 32,065 37,832 Employer contribution....................... 61 3,458 Plan participants' contributions............ 272 265 Foreign exchange............................ (320) (878) Benefits paid............................... (14,538) (14,837) -------- -------- -------- -------- Fair value of plan assets at end of year.... -- 222,219 -- 204,679 -------- -------- -------- -------- Funded status................................. (25,302) 28,585 (21,540) 25,697 Unrecognized net actuarial (gain) loss........ 1,075 (9,236) 252 (4,046) Unrecognized prior service cost............... 10,076 6,609 Unrecognized transition obligation net........ 167 (2,540) 177 (2,867) -------- -------- -------- -------- (Accrued) prepaid benefit cost................ $(24,060) $ 26,885 $(21,111) $ 25,393 ======== ======== ======== ========
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Components of net pension cost: Service cost.............................................. $ 4,465 $ 3,969 $ 3,723 Interest cost............................................. 14,142 13,761 13,707 Expected return on plan assets............................ (18,038) (35,321) (16,193) Net amortization and deferral of actuarial losses......... 983 19,417 1,321 -------- -------- -------- Net pension cost............................................ $ 1,552 $ 1,826 $ 2,558 ======== ======== ========
F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5--BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) The weighted-average discount rate and rate of increase in future compensation levels used in determining actuarial present value of the projected benefit obligation was 7.0% (7.25% in 1997 and 7.5% in 1996) and 3.0% (3.25% in 1997 and 3.50% in 1996), respectively. The expected long-term rate of return on assets was 10.5%. Plan assets consist primarily of U.S. equity and debt securities. The Company has also adopted an unfunded Supplemental Employee Retirement Plan ("SERP") which provides for the payment of the portion of annual pension which cannot be paid from the retirement plan as a result of regulatory limitations on average compensation for purposes of the benefit computation. The largest non-U.S. pension plan, in accordance with local custom, is unfunded and had an accumulated benefit obligation of approximately $21,139 and $18,656 at December 31, 1998 and 1997, respectively. Such obligation is included in the Consolidated Balance Sheet and the tables above. Pension plans of certain of the Company's other international subsidiaries generally do not determine the actuarial value of accumulated benefits and the value of net assets on the basis shown above. The plans, in accordance with local practices, are generally unfunded. The vested benefit obligations of these plans are not significant. The Company maintains self insurance programs for that portion of its health care and workers compensation costs not covered by insurance. The Company also provides certain health care and life insurance benefits to certain eligible retirees through postretirement benefit programs. The Company's share of the cost of such plans for most participants is fixed, and any increase in the cost of such plans will be the responsibility of the retirees. The Company funds the benefit costs for such plans on a pay-as-you-go basis. Since the Company's obligation for postretirement medical plans is fixed and since the accumulated postretirement benefit obligation ("APBO") and the net postretirement benefit expense are not material in relation to the Company's financial condition or results of operations, management believes any change in medical costs from that estimated will not have a significant impact on the Company. The discount rates used in determining the APBO at December 31, 1998 and 1997 were 7.0% and 7.25%, respectively. Summary information on the Company's postretirement medical plans as of December 31, 1998 and 1997 is as follows:
DECEMBER 31, ------------------- 1998 1997 -------- -------- Change in benefit obligation: Benefit obligation at beginning of year............... $ 13,027 $ 13,102 Service cost.......................................... 72 65 Interest cost......................................... 935 963 Benefits and expenses paid by Amphenol................ (2,616) (2,092) Actuarial gain (loss)................................. 1,247 989 -------- -------- Benefit obligation at end of year..................... $ 12,665 $ 13,027 ======== ======== Funded status........................................... $(12,665) $(13,027) Unrecognized net actuarial loss......................... 9,111 8,507 Unrecognized transition obligation...................... 869 931 -------- -------- Accrued benefit cost.................................... $ (2,685) $ (3,589) ======== ========
F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5--BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Components of net postretirement benefit cost: Service cost.............................................. $ 72 $ 65 $ 36 Interest cost............................................. 935 963 1,545 Amortization of transition obligation..................... 62 62 424 Net amortization and deferral of actuarial losses......... 961 733 729 ------ ------ ------ Net postretirement benefit cost............................. $2,030 $1,823 $2,734 ====== ====== ======
NOTE 6--SHAREHOLDERS' EQUITY (DEFICIT) The Company had a stock option plan which authorized the granting of stock options by the Board of Directors for up to a maximum of 1,000,000 shares of Class A Common Stock (the "Old Plan"). In conjunction with the Merger and Recapitalization, all outstanding options under the Old Plan were cancelled and the holders of options with an exercise price less than $26.00 per share were paid the difference between $26.00 and the exercise price. Such amount for all of the then outstanding options was approximately $2.2 million. In May 1997, the Company adopted the 1997 Option Plan (the "New Plan") which authorizes the granting of stock options by a committee of the Board of Directors for up to a maximum of 1,200,000 shares of Common Stock. In May 1998, the New Plan was amended to increase the number of authorized shares to a maximum of 1,750,000. Options granted under the New Plan vest ratably over a period of five years from the date of grant and are exercisable over a period of ten years from the date of grant. In addition, shares issued in conjunction with the exercise of stock options under the New Plan are generally subject to a Management Stockholders' Agreement which, among other things, places restrictions on the sale or transfer of such shares. Stock option plan activity for 1996, 1997, and 1998 was as follows:
OLD PLAN NEW PLAN AVERAGE PRICE --------- --------- ------------- Options outstanding at December 31, 1995................... 313,844 $18.48 Options granted............................................ 173,600 23.82 Options exercised.......................................... (15,005) 11.11 Options cancelled.......................................... (49,001) 21.53 --------- Options outstanding at December 31, 1996................... 423,438 20.58 Options granted............................................ 1,190,176 26.12 Options exercised.......................................... (14,001) 13.15 Options cancelled.......................................... (409,437) (11,750) 20.47 --------- --------- Options outstanding at December 31, 1997................... -- 1,178,426 26.12 Options granted............................................ -- 240,460 50.82 Options cancelled.......................................... -- (148,450) 51.36 --------- --------- Options outstanding at December 31, 1998................... -- 1,270,436 $27.85 ========= =========
F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 6--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------- ------------------- AVERAGE AVERAGE EXERCISE PRICE SHARES PRICE TERM SHARES PRICE - -------------- --------- -------- -------- -------- -------- $26.00 1,137,676 $26.00 8.38 227,535 $26.00 32.00 66,060 32.00 9.82 -- -- 39.93 10,000 39.93 8.63 2,000 39.93 58.00 56,700 58.00 9.27 -- --
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for the stock option plans. Accordingly, no compensation cost has been recognized for the plans. Had compensation cost for the stock option plans been determined based on the fair value of the option at date of grant consistent with the requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's income before extraordinary item and net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 -------- -------- -------- Income before extraordinary item.................... As reported $36,510 $51,264 $67,578 Pro forma 34,075 49,704 66,884 Income per share before extraordinary item.......... As reported $ 2.07 $ 1.84 $ 1.45 Pro forma 1.93 1.79 1.43 Income per share before extraordinary item - assuming dilution................................. As reported $ 2.03 $ 1.83 $ 1.45 Pro forma 1.90 1.78 1.43 Net income.......................................... As reported $36,510 $26,717 $67,578 Pro forma 34,075 25,157 66,884 Net income per share................................ As reported $ 2.07 $ .96 $ 1.45 Pro forma 1.93 .90 1.43 Net income per share - assuming dilution............ As reported $ 2.03 $ .95 $ 1.45 Pro forma 1.90 .90 1.43
The fair value of each stock option has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
1998 1997 1996 -------- -------- -------- Risk free interest rate........................... 5.1% 5.4% 6.1% Expected life..................................... 4 years 4 years 4 years Expected volatility............................... 30.0% 30.0% 30.0% Expected dividend yield........................... -- -- --
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 6--SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED) The weighted-average fair values of options granted during 1998, 1997 and 1996 were $16.69, $8.36 and $7.98, respectively. Activity in the Company's Accumulated Other Comprehensive Income accounts for 1996, 1997 and 1998 is as follows:
CUMULATIVE CUMULATIVE MINIMUM ACCUMULATED CUMULATIVE APPRECIATION PENSION OTHER TRANSLATION IN MARKETABLE LIABILITY COMPREHENSIVE ADJUSTMENT SECURITIES ADJUSTMENT INCOME ----------- ------------- ---------- ------------- Balance December 31, 1995................... $(2,412) $ 4,772 $(7,571) $(5,211) Translation adjustments................... 647 647 Change in appreciation in market value of marketable securities available-for-sale...................... (1,085) (1,085) Change in minimum pension liability adjustment.............................. 1,762 1,762 ------- ------- ------- ------- Balance December 31, 1996................... (1,765) 3,687 (5,809) (3,887) Translation adjustments................... (8,147) (8,147) Change in appreciation in market value of marketable securities available-for-sale...................... (1,140) (1,140) Sale of available-for-sale securities..... (2,547) (2,547) Change in minimum pension liability adjustment.............................. 5,809 5,809 ------- ------- ------- ------- Balance December 31, 1997................... (9,912) -- -- (9,912) Translation adjustments................... 2,704 2,704 ------- ------- ------- ------- Balance December 31, 1998................... $(7,208) -- -- $(7,208) ======= ======= ======= =======
NOTE 7--LEASES At December 31, 1998, the Company was committed under operating leases which expire at various dates through 2008. Total rent expense under operating leases for the years 1998, 1997, and 1996 was $13,927, $11,495 and $12,216 respectively. Minimum lease payments under non-cancelable operating leases are as follows: 1999........................................................ $12,535 2000........................................................ 9,322 2001........................................................ 6,586 2002........................................................ 4,763 2003........................................................ 2,857 Beyond 2003................................................. 2,109 ------- Total minimum obligation $38,172 =======
F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 8--REPORTABLE BUSINESS SEGMENTS AND INTERNATIONAL OPERATIONS The Company has two reportable business segments: interconnect products and assemblies and cable products. The interconnect products and assemblies segment produces connectors and connector assemblies primarily for the communications, aerospace, industrial and automotive markets. The cable products segment produces coaxial and flat ribbon cable primarily for communication markets, including cable television. The accounting policies of the segments are the same as those for the Company as a whole and are described in Note 1 herein. The Company evaluates the performance of business units on, among other things, profit or loss from operations before interest expense, goodwill and other intangible amortization expense, headquarters' expense allocations, income taxes and nonrecurring gains and losses. The Company's reportable segments are an aggregation of business units that have similar production processes and products.
INTERCONNECT PRODUCTS CABLE AND ASSEMBLIES PRODUCTS TOTAL ------------------------------ ------------------------------ ------------------------------ 1998 1997 1996 1998 1997 1996 1998 1997 1996 -------- -------- -------- -------- -------- -------- -------- -------- -------- Net Sales --external................... $718,109 $679,887 $585,033 $200,768 $204,461 $191,188 $918,877 $884,348 $776,221 --intersegment............... 358 102 76 7,189 5,037 4,462 7,547 5,139 4,538 Depreciation and amortization................. 18,235 15,029 13,110 3,039 2,960 2,306 21,274 17,989 15,416 Segment operating income....... 135,739 132,520 102,937 31,880 39,313 43,818 167,619 171,833 146,755 Segment assets................. 311,892 256,380 232,765 55,119 58,743 51,129 367,011 315,123 283,894 Additions to property, plant and equipment................ 22,483 21,275 17,654 3,834 2,666 3,388 26,317 23,941 21,042
Reconciliation of segment operating income to consolidated income before taxes and extraordinary item:
1998 1997 1996 -------- -------- -------- Segment operating income...................... $167,619 $171,833 $146,755 Amortization of goodwill...................... (11,701) (11,316) (10,962) Interest expense.............................. (81,199) (64,713) (24,617) Headquarters' expense and other net expenses.................................... (10,736) (8,630) (1,511) -------- -------- -------- Consolidated income before taxes and extraordinary item.......................... $ 63,983 $ 87,174 $109,665 ======== ======== ========
Reconciliation of segment assets to consolidated total assets:
1998 1997 1996 -------- -------- -------- Segment assets................................ $367,011 $315,123 $283,894 Goodwill...................................... 360,265 339,223 346,583 Other unallocated assets...................... 80,125 82,808 80,185 -------- -------- -------- Consolidated total assets..................... $807,401 $737,154 $710,662 ======== ======== ========
F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 8--REPORTABLE BUSINESS SEGMENTS AND INTERNATIONAL OPERATIONS (CONTINUED) Geographic information:
LAND AND NET SALES DEPRECIABLE ASSETS ------------------------------ ------------------------------ 1998 1997 1996 1998 1997 1996 -------- -------- -------- -------- -------- -------- United States.......................... $591,377 $581,278 $503,385 $ 70,072 $ 64,020 $ 60,413 Europe................................. 245,057 230,923 233,670 43,301 36,519 33,761 Other.................................. 155,350 133,355 92,689 13,406 11,053 7,901 Eliminations........................... (72,907) (61,208) (53,523) -------- -------- -------- -------- -------- -------- Total.................................. $918,877 $884,348 $776,221 $126,779 $111,592 $102,075 ======== ======== ======== ======== ======== ========
Revenues by geographic area are based on origin of shipment. The Company had export sales from the United States operations of approximately $58,000, $88,000 and $80,000 in 1998, 1997 and 1996, respectively. NOTE 9--OTHER EXPENSES, NET Other income (expense) is comprised as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- Interest income................................... $ 121 $ 234 $ 784 Foreign currency transaction gains................ 1,445 1,283 339 Program fees on sale of accounts receivable....... (4,121) (3,671) (3,504) Minority interests................................ (849) (1,042) (251) Gain on sale of marketable securities............. 3,917 Agency and commitment fees........................ (705) (678) (257) Other............................................. (436) (1,104) (807) ------- ------- ------- $(4,545) $(1,061) $(3,696) ======= ======= =======
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 F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED) costs up to $30,000 and 100% of the costs in excess of $30,000. At December 31, 1998, approximately $15,000 of total costs have been incurred applicable to this agreement. Management does not believe that the costs associated with resolution of these or any other environmental matters will have a material adverse effect on the Company's financial condition or results of operations. A subsidiary of the Company has an agreement with a financial institution whereby the subsidiary can sell an undivided interest of up to $60,000 in a designated pool of qualified accounts receivable. The agreement expires in May 2004. Under the terms of the agreement, new receivables are added to the pool as collections reduce previously sold accounts receivable. The Company services, administers and collects the receivables on behalf of the purchaser. Fees payable to the purchaser under this agreement are equivalent to rates afforded high quality commercial paper issuers plus certain administrative expenses and are included in other expenses, net, in the accompanying Consolidated Statement of Income. The agreement contains certain covenants and provides for various events of termination. In certain circumstances the Company is contingently liable for the collection of the receivables sold; management believes that its allowance for doubtful accounts is adequate to absorb the expense of any such liability. At December 31, 1998 and 1997, approximately $60,000 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable balance in the accompanying Consolidated Balance Sheet. NOTE 11--FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and short-term cash investments: The carrying amount approximates fair value because of the short maturity of those instruments. Long-term debt: The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. At December 31, 1998 and 1997, based on market quotes for the same or similar securities it is estimated that the Company's 9 7/8% Subordinated Debentures were trading at a premium of 5% over book value. The book value of the Company's other long-term debt approximates fair value. Investments: The Company periodically uses derivative financial instruments. The instruments are primarily used to manage defined interest rate risk, and to a lesser extent foreign exchange and commodity risks arising out of the Company's core activities. In 1997, the Company entered into interest rate swaps to limit exposure to interest rate fluctuations on the Company's floating rate bank debt. At December 31, 1998 and 1997, the Company had $450,000 of interest rate swaps outstanding as described in Note 3. While it is not the Company's intention to terminate the interest rate swap agreements, the fair values were estimated by obtaining quotes from brokers which represented the amounts that the Company would receive or pay if the agreements were terminated. These fair values indicated that termination of the agreements at December 31, 1998 and 1997 would have resulted in a pretax loss of $12,829 and $3,085, respectively. Due to the volatility of interest rates, these estimated results may or may not be realized. F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 11--FINANCIAL INSTRUMENTS (CONTINUED) The Company does not utilize financial instruments for trading or other speculative purposes. It is estimated that the carrying value of the Company's other financial instruments at December 31, 1998 and 1997 approximates fair value. NOTE 12--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- 1998 Net sales........................................ $228,541 $227,942 $229,018 $233,376 Gross profit, including depreciation............. 74,397 74,621 72,813 72,892 Net income....................................... 9,673 10,355 8,212 8,270 Net income per share............................. .55 .59 .46 .46 Net income per share assuming dilution........... .54 .58 .46 .46 Stock price--High................................ 64 61 5/8 44 1/8 35 1/16 --Low................................... 53 1/4 39 29 13/16 27 1/2 1997 Net sales........................................ $211,773 $226,996 $223,494 $222,085 Gross profit, including depreciation............. 69,583 75,682 74,002 74,069 Income before extraordinary items................ 17,497 15,774 8,559 9,434 Income per share before extraordinary item....... .39 .50 .49 .54 Income per share before extraordinary item assuming dilution.............................. .39 .49 .48 .53 Net income (loss)................................ 17,497 2,929 8,559 (2,268) Net income (loss) per share...................... .39 .09 .49 (.13) Net income (loss) per share assuming dilution.... .39 .09 .48 (.13) Stock price--High 26 38 7/8 43 1/2 56 --Low................................... 21 3/4 24 1/8 39 1/16 44 1996 Net sales........................................ $194,822 $198,921 $184,876 $197,602 Gross profit, including depreciation............. 66,639 67,816 63,523 66,539 Net income....................................... 16,940 17,408 16,697 16,533 Net income per share (1)......................... .36 .37 .36 .37 Stock price--High................................ 26 27 5/8 22 7/8 23 --Low................................... 20 1/8 19 7/8 18 3/4 19
- ------------------------ (1) Net income per share assuming dilution is equal to net income per share. F-22 AMPHENOL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1999 DECEMBER 31, (UNAUDITED) 1998 ------------- ------------ ASSETS Current Assets: Cash and short-term cash investments...................... $ 8,969 $ 3,095 Accounts receivable, less allowance for doubtful accounts of $2,303 and $1,832, respectively...................... 116,463 83,065 Inventories............................................... 195,987 184,424 Prepaid expenses and other assets......................... 19,315 17,089 -------- -------- Total current assets........................................ 340,734 287,673 -------- -------- Land and depreciable assets, less accumulated depreciation of $197,287 and $190,047, respectively.................... 122,315 126,779 Deferred debt issuance costs................................ 14,711 16,783 Excess of cost over fair value of net assets acquired....... 359,747 360,265 Other assets................................................ 10,656 15,901 -------- -------- $848,163 $807,401 ======== ======== LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities: Accounts payable.......................................... $ 76,776 $ 67,885 Accrued interest.......................................... 17,003 11,306 Other accrued expenses.................................... 52,219 43,319 Current portion of long-term debt......................... 1,696 1,655 -------- -------- Total current liabilities................................... 147,694 124,165 -------- -------- Long-term debt.............................................. 938,222 952,469 Deferred taxes and other liabilities........................ 27,357 23,024 Shareholders' Deficit: Common stock.............................................. 18 18 Additional paid-in deficit................................ (499,793) (499,928) Accumulated earnings...................................... 245,149 214,861 Accumulated other comprehensive loss...................... (10,484) (7,208) -------- -------- Total shareholders' deficit................................. (265,110) (292,257) -------- -------- $848,163 $807,401 ======== ========
See accompanying notes to condensed consolidated financial statements. F-23 AMPHENOL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales..................................... $256,857 $229,018 $741,459 $685,501 Costs and expenses: Cost of sales, excluding depreciation and amortization.............................. 168,198 150,601 487,685 447,494 Depreciation and amortization expense....... 7,108 5,944 21,057 17,181 Selling, general and administrative expense................................... 37,369 33,210 107,428 98,191 Amortization of goodwill.................... 3,103 2,995 9,263 8,653 ---------- ---------- ---------- ---------- Operating income.............................. 41,079 36,268 116,026 113,982 Interest expense.............................. (20,001) (20,453) (59,673) (60,745) Other expenses, net........................... (1,229) (1,040) (3,817) (3,022) ---------- ---------- ---------- ---------- Income before income taxes.................... 19,849 14,775 52,536 50,215 Provision for income taxes.................... 8,263 6,563 22,248 21,975 ---------- ---------- ---------- ---------- Net income.................................... $11,586 $8,212 $30,288 $28,240 ---------- ---------- ---------- ---------- Net income per common share................... $.65 $.46 $1.70 $1.60 ---------- ---------- ---------- ---------- Average common shares outstanding............. 17,864,646 17,716,592 17,863,510 17,596,608 ---------- ---------- ---------- ---------- Net income per common share--assuming dilution.................................... $.64 $.46 $1.67 $1.58 ---------- ---------- ---------- ---------- Average common shares outstanding assuming dilution.................................... 18,196,036 17,917,861 18,107,502 17,927,434 ---------- ---------- ---------- ----------
See accompanying notes to condensed consolidated financial statements. F-24 AMPHENOL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) (DOLLARS IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE SHAREHOLDERS' STOCK DEFICIT INCOME EARNINGS LOSS DEFICIT -------- ---------- ----------------- ----------- ------------- ------------- Beginning balance at December 31, 1998......... $18 $(499,928) $214,861 $ (7,208) $(292,257) Comprehensive income: Net income................ [$ 30,288] 30,288 30,288 ----------------- Other comprehensive loss, net of tax: Foreign currency translation adjustment............ (3,276) (3,276) (3,276) ----------------- Comprehensive income........ [$ 27,012] ================= Other adjustments........... 135 135 --- --------- -------- -------- --------- Ending balance at Sept. 30, 1999............ $18 $(499,793) $245,149 $(10,484) $(265,110) === ========= ======== ======== =========
See accompanying notes to condensed consolidated financial statements. F-25 AMPHENOL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) (DOLLARS IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE SHAREHOLDERS' STOCK DEFICIT INCOME EARNINGS LOSS DEFICIT -------- ---------- ---------------- ----------- ------------- ------------- Beginning balance at December 31, 1997......... $18 $(511,582) $178,351 $(9,912) $(343,125) Comprehensive income: Net income................ [$ 28,240] 28,240 28,240 ---------------- Other comprehensive income, net of tax: Foreign currency translation adjustment............ 2,306 2,306 2,306 ---------------- Comprehensive income........ [$ 30,546] ================ Issuance of 320,809 shares of Common Stock related to acquisition............... 11,449 11,449 Other adjustments........... 160 160 --- --------- -------- ------- --------- Ending balance at Sept. 30, 1998............ $18 $(499,973) $206,591 $(7,606) $(300,970) === ========= ======== ======= =========
See accompanying notes to condensed consolidated financial statements. F-26 AMPHENOL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1999 1998 -------- -------- Net income.................................................. $30,288 $28,240 Adjustments for cash from operations: Depreciation and amortization............................. 30,320 25,834 Amortization of deferred debt issuance costs.............. 2,072 2,059 Net change in non-cash components of working capital...... (22,513) (20,454) ------- ------- Cash flow provided by operations............................ 40,167 35,679 ------- ------- Cash flow from investing activities: Capital additions, net.................................... (18,299) (20,753) Investments in acquisitions............................... (1,416) (30,373) ------- ------- Cash flow used by investing activities...................... (19,715) (51,126) ------- ------- Cash flow from financing activities: Net change in borrowings under revolving credit facilities.............................................. (14,578) 18,010 Decrease in borrowings under New Credit Facility.......... -- (5,000) ------- ------- Cash flow (used by) provided by financing activities........ (14,578) 13,010 ------- ------- Net change in cash and short-term cash investments.......... 5,874 (2,437) Cash and short-term cash investments balance, beginning of period.................................................... 3,095 4,713 ------- ------- Cash and short-term cash investments balance, end of period.................................................... $ 8,969 $ 2,276 ------- ------- Cash paid during the period for: Interest.................................................. $51,903 $51,879 Income taxes paid, net of refunds......................... 16,459 20,747
See accompanying notes to condensed consolidated financial statements. F-27 AMPHENOL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--PRINCIPLES OF CONSOLIDATION AND INTERIM FINANCIAL STATEMENTS The condensed consolidated balance sheets as of September 30, 1999 and December 31, 1998, and the related condensed consolidated statements of income for the three and nine months ended September 30, 1999 and 1998 and of changes in shareholders' deficit and of cash flow for the nine months ended September 30, 1999 and 1998 include the accounts of the Company and its subsidiaries. The interim financial statements included herein are unaudited. In the opinion of management all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such interim financial statements have been included. The results of operations for the three and nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes included in the Company's 1998 Annual Report on Form 10-K. NOTE 2--INVENTORIES Inventories consist of:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) ------------- Raw materials and supplies.......................... $ 28,090 $ 24,806 Work in process..................................... 121,426 114,035 Finished goods...................................... 46,471 45,583 -------- -------- $195,987 $184,424 ======== ========
NOTE 3--REPORTABLE BUSINESS SEGMENTS (UNAUDITED) 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 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. The segment results for the nine months ended September 30, 1999 and 1998 are as follows:
INTERCONNECT PRODUCTS CABLE AND ASSEMBLIES PRODUCTS TOTAL ------------------- ------------------- ------------------- 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- Net sales - -external.............................. $563,085 $535,654 $178,374 $149,847 $741,459 $685,501 - -intersegment.......................... 533 266 6,819 5,554 7,352 5,820 Segment operating income............... 98,432 105,278 36,441 22,328 134,873 127,606
F-28 AMPHENOL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3--REPORTABLE BUSINESS SEGMENTS (UNAUDITED) (CONTINUED) Reconciliation of segment operating income to consolidated income before taxes for the nine months ended September 30, 1999 and 1998:
1999 1998 -------- -------- Segment operating income................................ $134,873 $127,606 Amortization of goodwill................................ (9,263) (8,653) Interest expense........................................ (59,673) (60,745) Other net expenses...................................... (13,401) (7,993) -------- -------- Consolidated income before income taxes................. $ 52,536 $ 50,215 -------- --------
NOTE 4--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 condition or results of operations. Subsequent to the acquisition of Amphenol from AlliedSignal Inc. ("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. 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 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 Condensed Consolidated Statements 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 September 30, 1999 and December 31, 1998, approximately $60,000 in receivables were sold under the agreement and are therefore not reflected in the accounts receivable balance in the accompanying Condensed Consolidated Balance Sheets at those dates. F-29 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DECEMBER 7, 1999 AMPHENOL CORPORATION 2,750,000 SHARES OF CLASS A COMMON STOCK -------------------- PROSPECTUS ------------------------ DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS MERRILL LYNCH & CO. SALOMON SMITH BARNEY ------------------------------------------------------------ We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of Amphenol have not changed since the date hereof. - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----