10-QPeriod: Q2 FY2006

AMPHENOL CORP /DE/ Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 4, 2006For Securities:APH

Summary

Amphenol Corporation's Q2 2006 results show robust top-line growth, with net sales increasing by 37% year-over-year to $606.6 million. This growth was primarily driven by the interconnect products and assemblies segment, which saw a 39% increase in sales, fueled by strong performance in the mobile communications, IT, and industrial markets. While overall sales were impressive, the company recorded a significant $15 million casualty loss due to flooding at its Sidney, New York facility, impacting profitability in the quarter. Despite this event and an increase in interest expense related to recent acquisitions, the company demonstrated strong operational execution and liquidity, with cash from operations nearly doubling compared to the prior year's period. The integration of the TCS acquisition appears to be proceeding as planned, contributing to earnings per share, though it slightly impacted gross margins. The company also repurchased shares and continued its dividend payments, signaling confidence in its financial health and commitment to shareholder returns.

Key Highlights

  • 1Net sales surged 37% to $606.6 million in Q2 2006, driven by strong demand in key end markets.
  • 2Interconnect products and assemblies segment led growth with a 39% sales increase.
  • 3A $15 million casualty loss was recognized due to flooding at the Sidney, NY facility.
  • 4Cash flow from operations more than doubled to $143.0 million for the first six months of 2006.
  • 5The company successfully refinanced its credit facility, extending its term and increasing borrowing capacity.
  • 6Acquisition of Teradyne's TCS business is contributing to sales and EPS, though it slightly compressed gross margins.
  • 7Share repurchases and dividend payments continued, underscoring commitment to shareholder returns.

Frequently Asked Questions

The company recognized a $15 million casualty loss in the second quarter of 2006 related to property damage from flooding at its Sidney, New York manufacturing facility, net of expected insurance recoveries. This charge impacted net income for the quarter. Additionally, there was a temporary reduction in sales due to business interruption at the facility.

The acquisition of Teradyne's TCS business, completed in December 2005, contributed approximately $110 million in sales and generated operating income margins of around 13% for the second quarter of 2006. It added approximately $0.07 to diluted earnings per share for the quarter. While it contributed positively to revenue and EPS, the integration of TCS, which has lower margins than the company average, slightly lowered the overall consolidated gross margin percentage.

Amphenol maintains strong liquidity, with cash provided by operating activities nearly doubling in the first six months of 2006 compared to the same period in 2005. The company recently amended and extended its $1.0 billion revolving credit facility, demonstrating continued access to financing. Despite increased borrowings to fund acquisitions, its financial covenants remain strong, with an interest coverage ratio of 9.79x and a leverage ratio of 1.68x as of June 30, 2006.

Amphenol is focused on continued growth through organic sales increases in its core markets and strategic acquisitions. The company expects to fund its ongoing operating and capital expenditures, product development, stock repurchases, dividends, and potential future acquisitions through internally generated cash flow, its revolving credit facility, and accounts receivable sales. The company believes its liquidity and cash flow generation capabilities are sufficient to meet its obligations for the foreseeable future.