01—Abstract
Summary
Summary of the 10-K filed March 29, 2000. Cited figures are marked; the original filing is the authoritative source.
Amphenol Corporation (NYSE: APH) reported fiscal 1999 net sales of $1,010.6 milliona, up 10% from $918.9 million in 1998, with operating income of $160.7 million (15.9% operating margin, versus 16.3% in 1998).
Net income was $35.6 millionb ($1.94 diluted EPS), which includes an $8.7 million after-tax extraordinary loss from early debt extinguishment. Income before the extraordinary item rose 21% to $44.3 million ($2.42 diluted EPS). Growth was led by the Interconnect Products and Assemblies segment (up 7%, driven by wireless, telecom and datacom demand) and the Cable Products segment (up 20%, driven by cable TV upgrades and recovering Asian markets).
International sales grew about 17% in dollars and 19% in local currency and now represent roughly 49% of sales. The balance sheet remains highly leveraged following the 1997 KKR-led merger and recapitalization. Total long-term debt was $745.7 millionc at year-end 1999, down from $952.5 million, after a December 1999 public offering of 2.75 million shares raised $181.8 million, of which $105.5 million redeemed 9 7/8% Senior Subordinated Notes.
Shareholders' equity improved to a deficit of $(81.2) million from $(292.3) million. KKR affiliates still own 63.9% of the common stock, and the company pays no dividends and is restricted from paying them under its debt covenants. Interest expense of $79.3 milliond consumed much of operating income, though EBITDA as defined in the bank agreement rose to $205.6 million from $192.1 million.
Looking ahead, management expects 2000 capital expenditures of about $35 million, required debt amortization of $16.8 million and cash interest of roughly $58 million. A two-for-one stock split approved March 14, 2000 is expected to be paid around April 25, 2000, subject to shareholder approval of an increase in authorized shares. The company also disclosed environmental exposure at Sidney Center and Richardson Hill landfill sites, with Allied Signal sharing costs under a 1987 acquisition agreement, and management does not expect these matters to be material.
02—Key points
Key Highlights
- Net sales grew 10% to $1,010.6 million in 1999, with cable products up 20% and interconnect products up 7%
- Operating margin declined slightly to 15.9% from 16.3%, while income before extraordinary item rose 21% to $44.3 million ($2.42 diluted EPS)
- Net income of $35.6 million ($1.94 diluted EPS) after an $8.7 million after-tax extraordinary loss from debt retirement
- Total long-term debt fell to $745.7 million from $952.5 million following the December 1999 equity offering and note redemption
- Shareholders' deficit narrowed to $(81.2) million from $(292.3) million; KKR affiliates own 63.9% of the stock
- International sales rose about 17% to roughly 49% of total sales, supported by strong wireless and cable TV demand in Europe and Asia
- Two-for-one stock split approved March 14, 2000, with distribution expected around April 25, 2000
03—Questions
Frequently Asked Questions
How profitable is Amphenol and how did its margins trend in 1999?
Amphenol generated $160.7 million of operating income on $1,010.6 million of sales in 1999, a 15.9% operating margin. That is down slightly from 16.3% in 1998 and 17.6% in 1997, mainly because cost of sales and depreciation rose as a share of revenue. Net income before the extraordinary item was $44.3 million, or 4.4% of sales, and benefited from lower interest expense and a lower effective tax rate of 41.9%.
How much debt does Amphenol carry and is it reducing it?
Long-term debt was $745.7 million at December 31, 1999, plus a $16.8 million current portion, for total debt of $762.5 million, down from $954.1 million a year earlier. The reduction came mainly from the December 1999 equity offering, which funded the redemption of $96 million of 9 7/8% notes and paydown of term loans. Interest expense of $79.3 million remains heavy relative to operating income, so leverage is still a key risk for investors.
Does Amphenol pay dividends, and when might shareholders see returns?
No. Amphenol has never paid cash dividends since its 1991 IPO, has no present intention to start, and is currently restricted by its debt covenants from paying dividends or repurchasing stock. Management says it intends to retain earnings to fund operations, expansion and debt repayment. The only shareholder-friendly corporate action disclosed is the planned two-for-one stock split, which is a share distribution rather than a cash return.
What are the main risks to Amphenol's business?
Key risks include a global economic slowdown, currency fluctuations (about 49% of sales are international), raw material cost increases for gold, silver, copper, aluminum and plastics, pricing pressure on standard products, and interest rate changes given the floating-rate bank debt. A technological shift away from coaxial cable in cable TV could significantly affect the Times Fiber business. Environmental remediation at several sites is shared with Allied Signal, and management does not expect it to be material.
What drove growth in 1999 and what should investors expect in 2000?
Growth came from wireless, telecom and datacom connector demand, the build-out of cable TV networks and recovering Asian cable markets, partly offset by weaker commercial aerospace and Space Station-related sales. For 2000, management expects capital expenditures of about $35 million, debt amortization of $16.8 million and cash interest of roughly $58 million, funded by operating cash flow and its revolving credit facility, which had $134.6 million available at year-end 1999. The filing does not provide a specific sales or earnings forecast.
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