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Article by DailyStocks_admin    (11-24-08 10:22 AM)

The Daily Magic Formula Stock for 11/23/2008 is Amphenol Corp. According to the Magic Formula Investing Web Site, the ebit yield is 16% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.


CEO BACKGROUND

The Amended and Restated Certificate of Incorporation and By-Laws of the Company provide for a Board consisting of three or more directors. Currently, the number of directors of the Company is seven. Directors of the Company are elected for terms of three years, with approximately one-third of the directors subject to election each year. Accordingly, action will be taken at the Annual Meeting for the re-election of two current directors, Ronald P. Badie and Dean H. Secord. Each of these directors will hold office for the three-year term ending in 2011 and until their respective successors are elected and qualified.

The Company's Corporate Governance Principles provide that the Board does not intend to appoint or to nominate any person for election to the Board after their 72 nd birthday although the Board has reserved the right to nominate candidates over 72 for re-election in special circumstances. Mr. Secord, a current Director and Chairman of the Audit Committee and member of the Compensation Committee and the Nominating/Corporate Governance Committee, turned 72 in October 2007. Mr. Secord has been a Director for five years. During that time, he has demonstrated a high level of energy and commitment to the Company and to the Board. In the last five years he has attended all Board meetings and all Committee meetings of which he is a member. Mr. Secord's experience with and his knowledge and understanding of the Company's accounting policies, practices, internal controls and reporting procedures continue to be very important to the Audit Committee and to the Company. The Board has, therefore, determined that
the current needs of the Audit Committee warrant the nomination of Mr. Secord, and Mr. Secord has agreed to serve, for one additional term, as a Director of the Company.


Ronald P. Badie Chairman of the Executive Committee and member of the Audit Committee and the Pension Committee of the Company. Mr. Badie retired from Deutsche Bank in March 2002. At the time of his retirement, Mr. Badie was vice chairman of Deutsche Bank Securities. He also held several executive positions with its predecessor, Bankers Trust Company. Mr. Badie currently serves as Lead Independent Director and member of the Compensation and Nominating and Corporate Governance Committee of Nautilus Inc. and as a Director, Chairman of the Compensation Committee and member of the Audit Committee of Obagi Medical Products, Inc. as well as Lead Independent Director and member of the Audit Committee of Merisel, Inc.
Age 65
A Director since
July 2004

Dean H. Secord Chairman of the Audit Committee and member of the Compensation Committee and the Nominating/Corporate Governance Committee of the Company. Mr. Secord continues to be actively employed as an independent business consultant. He served as an international audit partner of PricewaterhouseCoopers from July 1972 through July 2001. Mr. Secord does not serve on the board of directors of any other public company.
Age 72
A Director since
March 2002


Edward G. Jepsen Member of the Pension Committee of the Company. Mr. Jepsen was employed as a non-executive Advisor to the Company from January 2005 through his retirement in December 2006. He was executive vice president of the Company from May 1989 through December 2004 and chief financial officer of the Company from May 1989 through October 2004. Mr. Jepsen also served as a director of the Company from 1989 through 1997. Mr. Jepsen currently serves as a Director and Chairman of the Audit and Finance Committee and member of the Compensation Committee of Gerber Scientific, Inc., and as a Director and Chairman of the Audit and Finance Committee and member of the Compensation Committee and the Safety, Health, Security and Environmental Committee of ITC Holdings Corp.
Age 64
A Director since
January 2005


John R. Lord Chairman of the Compensation Committee and member of the Executive Committee and of the Nominating/Corporate Governance Committee of the Company. Mr. Lord served as the non-executive chairman of Carrier Corporation from January 2000 through April 2006. Mr. Lord was president and chief executive officer of Carrier Corporation, a division of United Technologies Corporation, from April 1995 until his retirement in January 2000. Mr. Lord also currently serves as a Director and member of the Audit and Finance Committee and Chairman of the Compensation Committee of Gerber Scientific, Inc.
Age 64
A Director since
March 2004


Stanley L. Clark Chairman of the Pension Committee and member of the Audit Committee of the Company. Mr. Clark has been Chief Executive Officer and Trustee of Goodrich, LLC since 2001. He was chief executive officer of Simplex Time Recorder Company from 1998 to 2001 and director from 1996 to 2001, chief operating officer from 1996 to 1998 and group vice president from 1994 to 1996. Mr. Clark does not serve on the board of directors of any other public company.
Age 64
A Director since
January 2005


Andrew E. Lietz Chairman of the Nominating/Corporate Governance Committee and member of the Executive Committee and the Compensation Committee of the Company and presiding director. Mr. Lietz has been Managing Director of Rye Capital Management, LLC since November 2000. He was president and chief executive officer of Hadco Corporation from 1995 until June 2000. Mr. Lietz also currently serves as a Director of Details Dynamic Inc. and Safeguard Scientifics, Inc.
Age 69
A Director since
January 2001


Martin H. Loeffler Chairman of the Board of the Company since May 1997. Mr. Loeffler has been Chief Executive Officer of the Company since May 1996 and was president of the Company from July 1987 to December 2007. Mr. Loeffler does not serve on the board of directors of any other public company. Mr. Loeffler has been an employee of the Company for approximately 35 years.
Age 63
A Director since
December 1987


Governance Principles.

Amphenol Corporation's Corporate Governance Principles meet or exceed the Listing Standards of the New York Stock Exchange (the "NYSE Listing Standards"), including guidelines for determining director independence and reporting concerns to non-employee directors and the Audit Committee of the Board of Directors. The Company's most current Governance Principles, the Code of Business Conduct and Ethics and the Charters of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee of the Board of Directors are reviewed at least annually and revised as warranted. Amphenol Corporation's Code of Business Conduct and Ethics applies to all employees, directors and officers of the Company and its subsidiaries. The Principles, Code and Charters can be accessed via the Company's website at www.amphenol.com by clicking on "Company", then "Investor Info", then "Corporate Governance" then the desired Principles, Code or Charter. Printed copies of the Company's most current Governance Principles, the Code of Business Conduct and Ethics and the Charters of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee of the Board of Directors will also be provided to any stockholder of the Company free of charge upon written request to the Secretary of the Company, 358 Hall Avenue, P.O. Box 5030, Wallingford, Connecticut 06492-7530.

Director Independence.

The Board has adopted the definition of "independent director" set forth in the NYSE Listing Standards to assist it in making determinations of independence. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independence determination. The Board has confirmed that all of the directors are independent of the Company and its management with the exception of Messrs. Loeffler and Jepsen, each of whom is considered an inside director because of his current or prior employment with the Company. Mr. Jepsen retired from the Company in December 2006 and pursuant to NYSE Listing Standards cannot be considered an independent director before January 2010.

Board of Directors and Committees.

The Board currently consists of seven directors. Mr. Loeffler is Chairman of the Board and Mr. Lietz is the Board's presiding director. The Board has five standing committees: the Audit Committee, the Compensation Committee, the Executive Committee, the Pension Committee and the Nominating/Corporate Governance Committee. The Board has determined that all the members of the Audit, Compensation and Nominating/Corporate Governance Committees are independent and satisfy the relevant SEC and the New York Stock Exchange independence requirements for the members of such Committees. The Board has also determined that all members of the Executive Committee are independent and that all members of the Pension Committee, with the exception of Mr. Jepsen, are independent.

Audit Committee. The Audit Committee's principal duties include (1) the selection of independent auditors and the approval of all audit engagement fees and terms; (2) reviewing the plan of audit and the results of the audit including the audit report and the management letter; (3) consulting periodically with the Company's independent auditors with regard to the adequacy of internal controls and the effect of all critical accounting policies and practices and all applicable regulatory standards and principles; (4) approving permissible non-audit services to be provided to the Company by the independent auditor; (5) reviewing the Company's internal system of audit, financial and disclosure controls; and (6) overseeing financial reporting activities including unaudited quarterly and audited annual reports and related press releases. See also "Report of the Audit Committee" on page 15. The members of the Audit Committee are Ronald P. Badie, Stanley L. Clark and Dean H. Secord (Chairman).


MANAGEMENT DISCUSSION FROM LATEST 10K


Executive Overview



The Company is a global designer, manufacturer and marketer of interconnect and cable products. In 2007, approximately 59% of the Company’s sales were outside the U.S. The primary end markets for our products are:



• communication systems for the converging technologies of voice, video and data communications;



• a broad range of industrial applications including factory automation and motion control systems, medical and industrial instrumentation, mass transportation, natural resource exploration and automotive applications; and



• commercial aerospace and military applications.



The Company’s products are used in a wide variety of applications by numerous customers, the largest of which accounted for approximately 7% of net sales in 2007. The Company encounters competition in all of its markets and competes primarily on the basis of engineering, product quality, price, customer service and delivery time. There has been a trend on the part of OEM customers to consolidate their lists of qualified suppliers to companies that have a global presence, can meet quality and delivery standards, have a broad product portfolio and design capability, and have competitive prices. The Company has focused its global resources to position itself to compete effectively in this environment. The Company believes that its global presence is an important competitive advantage as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers.



The Company’s strategy is to provide comprehensive design capabilities, a broad selection of products and a high level of service in the areas in which it competes. The Company focuses its research and development efforts through close collaboration with its OEM customers to develop highly-engineered products that meet customer needs and have the potential for broad market applications and significant sales within a one-to-three year period. The Company is also focused on controlling costs. The Company does this by investing in modern manufacturing technologies, controlling purchasing processes and expanding into low cost areas.



The Company’s strategic objective is to further enhance its position in its served markets by pursuing the following success factors:



• Focus on customer needs

• Design and develop application-specific interconnect solutions

• Establish a strong global presence in resources and capabilities

• Preserve and foster a collaborative, entrepreneurial management structure

• Maintain a culture of controlling costs

• Pursue strategic acquisitions



For the year ended December 31, 2007, the Company reported net sales, operating income and net income of $2,851.0 million, $552.9 million and $353.2 million, respectively; up 15%, 30% and 38%, respectively, from 2006. Sales of interconnect products and assemblies and sales of cable products increased in all of the Company’s related major markets and geographic regions. Sales and profitability trends are discussed in detail in “Results of Operations” below. In addition, a strength of the Company is its ability to consistently generate cash. The Company uses cash generated from operations to fund capital expenditures and acquisitions, repurchase shares of its common stock, pay dividends and reduce indebtedness. In 2007, the Company generated operating cash flow of $387.9 million.


2007 Compared to 2006



Net sales were $2,851.0 million for the year ended December 31, 2007 compared to $2,471.4 million for 2006, an increase of 15% in U.S. dollars and 13% in local currencies. The increase in sales over 2006 excluding acquisitions was 15% in U.S. dollars and 12% in local currencies. Sales of interconnect products and assemblies (approximately 90% of net sales) increased 16% in U.S. dollars and 13% in local currencies compared to 2006 ($2,569.3 million in 2007 versus $2,207.5 million in 2006). Sales increased in all of the Company’s major end markets including the military/aerospace, wireless communications, industrial/automotive, and telecommunications and data communications markets. Sales to the military/aerospace markets increased approximately $117.5 million primarily due to increased sales to military customers for various defense related programs including war related spending, as well as an increase in sales to commercial aerospace customers. The increase in sales in the wireless communications markets (approximately $104.6 million) is attributable to increased sales to the mobile device market relating to new products for both mobile phones and laptop computers, and to a lesser extent, to increased demand in the wireless infrastructure market from base station/equipment manufacturers and cell site installation customers. The increase in sales in the industrial/automotive market (approximately $77.0 million) primarily reflects increased new product sales to the European automotive market, increased sales to the natural resource exploration and factory automation markets as well as the impact of acquisitions. The increase in sales to the telecommunications and data communications related markets (approximately $54.1 million) reflects increased sales of high speed interconnect products for servers and switching and transmission equipment for data centers. Sales of cable products (approximately 10% of net sales) increased 7% compared to 2006 ($281.8 million in 2007 versus $263.9 million in 2006). Such increase is primarily due to increased sales in broadband cable television markets and the impact of price increases.



Geographically, sales in the U.S. in 2007 increased approximately 9% compared to 2006 ($1,155.8 million in 2007 versus $1,060.0 million in 2006); international sales for 2007 increased approximately 20% in U.S. dollars ($1,695.2 million in 2007 versus $1,411.5 million in 2006) and increased approximately 16% in local currency compared to 2006. The comparatively weak U.S. dollar in 2007 had the effect of increasing net sales by approximately $66.3 million when compared to foreign currency translation rates in 2006.



The gross profit margin as a percentage of net sales increased to 33% in 2007 compared to 32% in 2006. The operating margin for interconnect products and assemblies increased approximately 1.3% compared to the prior year, mainly as a result of the continuing development of new higher margin application specific products, excellent operating leverage on incremental volume and aggressive programs of cost control. In addition, cable operating margins increased 0.7% due primarily to the impact of a higher mix of specialty products , increased production levels in low cost facilities and price increases partially offset by higher material costs.



Selling, general and administrative expenses were $377.3 million and $342.8 million in 2007 and 2006, respectively, or approximately 13% and 14% of sales in 2007 and 2006, respectively. The increase in expense in 2007 is attributable to increases in the major components of selling, general and administrative expenses as follows. Research and development expenditures increased approximately $8.7 million, reflecting increases in expenditures for new product development and represented approximately 2% of sales for both 2007 and 2006. Selling and marketing expenses remained approximately 7% of sales for both 2007 and 2006. Administrative expense, which represented approximately 4% and 5% of sales in 2007 and 2006, respectively, increased by approximately $8.4 million, due primarily to increases in stock-based compensation expense of $2.7 million, and cost increases relating to professional fees as well as salaries and employee-related benefits.



The Company incurred damage at its Sidney, New York manufacturing facility as a result of severe and sudden flooding during the second quarter of 2006. In 2006, the Company recorded charges of $20.7 million, or $.08 per share, for recovery and clean up expenses and property related damage, net of insurance and grant recoveries. The Sidney facility had limited manufacturing and sales activity for the period from June 28 to July 14, 2006. Production activity was substantially back to full production at the end of the third quarter of 2006. As a result, sales in 2006 were reduced by approximately $25.0 million.



Interest expense was $36.9 million for 2007 compared to $38.8 million for 2006. The decrease is primarily attributable to the lower average debt levels in 2007.



Other expenses, net, for 2007 and 2006 were $15.0 million and $12.5 million, respectively. Other expenses, net, are comprised primarily of minority interests ($10.5 million in 2007 and $6.0 million in 2006), program fees on the sale of accounts receivable ($5.2 million in 2007 and $5.0 million in 2006), and agency and commitment fees on the Company’s credit facilities ($1.8 million in 2007 and $2.0 million in 2006) offset by interest income ($2.7 million in 2007 and $0.7 million in 2006).
The provision for income taxes was at an effective rate of 29.5% in 2007 and 31.5% in 2006. The lower effective tax rate results primarily from an increase in income in lower tax jurisdictions and changes in the Company’s income repatriation plans. The total effective rate reduction lowered tax expense in 2007 by approximately $10.0 million or $.05 per share.

2006 Compared to 2005



Net sales were $2,471.4 million for the year ended December 31, 2006 compared to $1,808.1 million for 2005, an increase of 37% in U.S. dollars and 36% in local currencies. The increase in sales over 2005 excluding acquisitions was 12% in U.S. dollars and 11% in local currencies. Sales of interconnect products and assemblies (approximately 90% of net sales) increased 39% in U.S. dollars and 38% in local currencies compared to 2005 ($2,207.5 million in 2006 versus $1,592.4 million in 2005). Sales increased in the Company’s major end markets including telecommunications and data communications, mobile communications, industrial and military/aerospace markets. Sales to the telecommunications and data communications related markets increased approximately $338.8 million reflecting the impact of the acquisition of TCS in December 2005 (Note 8) and increased sales of new high speed interconnect products for servers and other data center equipment applications. The increase in sales in the mobile communications markets (approximately $209.0 million) is attributable primarily to increased sales to the mobile device market relating to new products, the impact of the acquisition of TCS in December 2005 and to a lesser extent to increased demand in the wireless infrastructure market from cell site installation customers. The increase in sales in the industrial market (approximately $55.8 million) reflects increased sales in North America and Europe relating to products for the factory automation, medical and oil/geophysical markets and the impact of acquisitions. The increase in military/aerospace sales (approximately $15.4 million) relates to increased demand on commercial aircraft and military programs. Sales in the military/aerospace market were adversely impacted by approximately $25.0 million in 2006 due to business interruption related to the flood at the Company’s Sidney, New York facility further described below . Automotive sales declined approximately $8.1 million primarily as a result of a reduction in vehicle production rates by European and U.S. vehicle manufacturers. Sales of cable products (approximately 10% of net sales) increased 22% compared to 2005 ($263.9 million in 2006 versus $215.7 million in 2005). Such increase is primarily due to increased sales in broadband cable television markets and the impact of price increases.



Geographically, sales in the U.S. in 2006 increased approximately 32% compared to 2005 ($1,060.0 million in 2006 versus $802.4 million in 2005); international sales for 2006 increased approximately 40% in U.S. dollars ($1,411.5 million in 2006 versus $1,005.8 million in 2005) and increased approximately 39% in local currency compared to 2005. The comparatively weak U.S. dollar in 2006 had the effect of increasing net sales by approximately $16.5 million when compared to foreign currency translation rates in 2005.



The gross profit margin as a percentage of net sales decreased to 32% in 2006 compared to 33% in 2005 due primarily to a decrease in margins in the interconnect products and assemblies segment primarily as a result of the TCS acquisition (Note 8). The operating margin for interconnect products and assemblies decreased approximately 1% compared to the prior year. TCS margins are lower than the average margin of the Company and its inclusion in the consolidated results lowered the margin percentage. Interconnect segment margins excluding the impact of TCS were consistent with the prior year margins as the continuing development of new higher margin, application specific products, excellent operating leverage on incremental volume and aggressive programs of cost control, offset increases resulting primarily from higher material costs. In addition, cable operating margins decreased 0.3% reflecting higher material and freight costs in 2006 driven by higher commodity and energy prices offset, in part, by the impact of price increases.



Selling, general and administrative expenses were $342.8 million and $257.1 million in 2006 and 2005, respectively, or approximately 14% of sales in each year. The increase in expense in 2006 is attributable to the impact of acquisitions and increases in the major components of selling, general and administrative expenses as follows. Research and development expenditures increased approximately $13.6 million, reflecting increases in expenditures for new product development and represented approximately 2% of sales for both 2006 and 2005. Selling and marketing expenses remained approximately 7% of sales. Administrative expenses increased by approximately $34.2 million, due primarily to increases in costs as a result of the TCS acquisition and stock-based compensation expense of $9.7 million, as a result of the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 123(R) “Share-Based Payment,” which was effective on January 1, 2006 , in addition to general cost increases relating to professional fees, pensions and employee-related benefits.



The Company incurred damage at its Sidney, New York manufacturing facility as a result of severe and sudden flooding during the second quarter of 2006. In 2006, the Company recorded charges of $20.7 million, or $.08 per share, for recovery and clean up expenses and property related damage, net of insurance and grant recoveries. The Sidney facility had limited manufacturing and sales activity for the period from June 28 to July 14, 2006. Production activity was substantially back to full production at the end of the third quarter of 2006. As a result, sales in 2006 were reduced by approximately $25.0 million.


Interest expense was $38.8 million for 2006 compared to $24.1 million for 2005. The increase is primarily attributable to higher interest rates and higher average debt levels related to the TCS acquisition (Note 8).



Expenses for early extinguishment of debt totaling $2.4 million in 2005, relate to the refinancing of the Company’s senior credit facilities. Such one-time expenses included the write off of deferred debt issuance costs of $5.7 million partially offset by the settlement of interest rate swap agreements of $3.2 million. No such expenses were incurred in 2006.



Other expenses, net, for 2006 and 2005 were $12.5 million and $8.9 million, respectively. Other expenses, net, are comprised primarily of minority interests ($6.0 million in 2006 and $4.1 million in 2005), program fees on the sale of accounts receivable ($5.0 million in 2006 and $3.8 million in 2005), reflecting higher receivable fee rates in 2006 and agency and commitment fees on the Company’s credit facilities ($2.1 million in 2006 and $1.5 million in 2005) primarily due to higher commitment fees offset by interest income ($0.7 million in 2006 and $0.4 million in 2005).



In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. This pronouncement amends SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of SFAS No. 123”, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123(R) requires that companies account for awards of equity instruments under the fair value method of accounting and recognize such amounts in their statements of operations. The Company adopted SFAS No. 123(R) on January 1, 2006 using the modified prospective method and, in connection therewith compensation expense is recognized in its consolidated statement of income for the year ended December 31, 2006 over the service period that the awards are expected to vest. The Company recognizes expense for all stock-based compensation with graded vesting on a straight-line basis over the vesting period of the entire award. Stock-based compensation expense includes the estimated effects of forfeitures, and estimates of forfeitures will be adjusted over the requisite service period to the extent actual forfeitures differ, or are expected to differ from such estimates. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of expense to be recognized in future periods. Prior to January 1, 2006, the Company recorded stock-based compensation in accordance with the provisions of APB Opinion No. 25. The Company estimated the fair value of stock option awards in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”, and disclosed the resulting estimated compensation effect on net income on a pro forma basis. As a result of adopting SFAS No. 123(R) on January 1, 2006 the Company’s income before income taxes and net income was reduced by $9.7 million and $6.7 million, respectively, or $.04 per share, for the year ended December 31, 2006.



The provision for income taxes was at an effective rate of 31.5% in 2006 and 33% in 2005. The lower effective tax rate results primarily from an increase in income in lower tax jurisdictions and changes in the Company’s income repatriation plans. The total effective rate reduction lowered tax expense in 2006 by approximately $5.6 million or $.03 per share.

Liquidity and Capital Resources



Cash provided by operating activities totaled $387.9 million, $289.6 million and $229.6 million for 2007, 2006 and 2005, respectively. The increase in cash from operating activities in 2007 compared to 2006 is primarily attributable to an increase in net income, an increase in depreciation and amortization and a lower increase in the non-cash components of working capital compared to the increase in 2006. The increase in cash from operating activities in 2006 compared to 2005 is also primarily attributable to an increase in net income and an increase in depreciation and amortization partially offset by a higher increase in the non-cash components of working capital compared to the increase in 2005.



The non-cash components of working capital increased $63.0 million in 2007 due primarily to increases in accounts receivable of $87.0 million, $23.7 million in excess tax benefits from stock-based payment arrangements, $22.7 million in inventory and $7.2 of prepaid expenses and other assets partially offset by a $43.7 million increase in accounts payable and an increase of $33.9 million in accrued liabilities.



The non-cash components of working capital increased $69.4 million in 2006 due primarily to increases in accounts receivable of $60.6 million, $81.9 million in inventory, $10.0 million in excess tax benefits from stock-based payment arrangements, $9.0 million in prepaid expenses and other assets and a decrease in accrued interest of $1.1 million partially offset by a $46.4 million increase in accounts payable and an increase of $46.8 million in accrued liabilities.



The non-cash components of working capital increased $36.7 million in 2005 due primarily to an increase in accounts receivable of $45.2 million and $20.6 million in inventory partially offset by a $25.8 million increase in accounts payable, a decrease of $10.4 million in accrued liabilities, an increase of $5.0 million of receivables sold, an increase in accrued interest of $3.0 million, and a decrease of $5.6 million in prepaid expenses and other assets.



In 2007, accounts receivable increased $126.6 million to $510.4 million, due to an increase in sales levels, $16.4 million due to translation resulting from the comparatively weaker U.S. dollar at December 31, 2007 compared to December 31, 2006 (“Translation”) and the remaining increase due to acquired companies. Days sales outstanding increased to approximately 69 days from 66 days in 2006 with Translation accounting for 1 day of the increase. Prepaid expenses and other assets increased $12.8 million to $72.9 million primarily from higher value-added tax receivables related to foreign operations in addition to higher short-term investment balances. Inventory increased $40.4 million to $456.9 million, primarily resulting from increased sales activity of $22.7 million as well as increases related to Translation and inventory from acquired companies of $11.5 million. Inventory days at December 31, 2007 and 2006 were 80 and 86, respectively. Other long-term assets decreased $16.5 million to $43.9 million primarily due to a reduction in long-term deferred tax assets and a reduction of the fair value of interest rate swaps arrangements in addition to amortization of intangible assets. Goodwill increased $165.6 million to $1,091.8 million primarily as a result of acquisitions completed during the year, the payment of and recording of liabilities for performance-based additional cash consideration of $24.6 million in addition to adjustments made related to prior year acquisitions. Land and depreciable assets, net, increased $42.1 million to $316.2 million reflecting capital expenditures of $103.8 million, $10.1 million due to Translation as well as assets from acquisitions of approximately $8.8 million offset by depreciation of $76.0 million and disposals of $4.6 million. Accounts payable and accrued salaries, wages and employee benefits increased $60.5 million and $1.8 million to $295.4 million and $55.0 million, respectively, due primarily to an increase in sales levels as well as liabilities assumed from acquired companies and a $7.3 and $0.5 million increase, respectively, due to Translation. Other accrued liabilities increased $12.7 million to $169.1 million relating primarily to an increase of $32.6 million in liabilities associated with performance-based additional cash consideration on acquisitions and an increase of $6.8 million due to Translation offset by a decrease in accrued income taxes of $23.4 million due primarily to the reclassification of the long term portion of the liability for unrecognized tax benefits in accordance with FIN 48 to long-term liabilities of $28.8 million. Accrued pension and post employment benefit obligations decreased $36.5 million to $101.8 million primarily due to contributions made during 2007 and higher discount rate assumptions used in the calculation of the projected benefit obligation at December 31, 2007 offset by an increase of $5.6 million due to Translation. Other long-term liabilities increased $37.7 million to $67 million due primarily to the reclassification of the long-term portion of the liability for unrecognized tax benefits in accordance with FIN 48 from other accrued expenses as discussed above in addition to higher long-term deferred tax liabilities partially offset by a reduction in minority interest liabilities of $14.4 million due to the purchase of the remaining 30% of one of the Company’s foreign subsidiaries.



In 2007, cash from operating activities of $387.9 million, proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $58.2 million, net borrowings of $41.6 million and proceeds from disposal of fixed assets of $5.3 million were used to fund $179.3 million of acquisitions including payments for performance-based additional cash consideration, capital expenditures of $103.8 million, purchases of treasury stock of $93.6 million, dividend payments of $10.7 million, purchases of short-term investments of $1.4 million and an increase in cash on hand of $109.5 million . For 2006, cash from operating activities of $289.6 million, proceeds from disposal of fixed assets of $5.9 million and proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $31.9 million were used to fund capital expenditures of $82.4 million, acquisitions of $22.5 million, dividend payments of $10.7 million, a net debt reduction of $102.6 million, purchases of treasury stock of $72.7 million, payment of fees and expenses related to refinancing of $1.1 million and an increase in cash on hand of $35.5 million .



On July 15, 2005, the Company completed a refinancing of its senior secured credit facility. The new bank agreement (“Revolving Credit Facility”) was comprised of a five-year $750.0 million unsecured revolving credit facility that was originally scheduled to expire in July 2010, of which approximately $440.0 million was drawn at closing. On November 15, 2005, the Company exercised its option to increase its aggregate commitments under the Revolving Credit Facility by an additional $250.0 million thereby increasing the revolving credit facility to $1,000.0 million. On August 1, 2006, the Company amended the Revolving Credit Facility to reduce borrowing costs and increase the general indebtedness basket by $250.0 million through an accordion feature similar to that exercised on November 15, 2005. In addition, the term of the Revolving Credit Facility was extended from July 2010 to August 2011.



At December 31, 2007, availability under the Revolving Credit Facility was $274.6 million, after a reduction of $13.8 million for outstanding letters of credit. In connection with the 2005 refinancing, the Company incurred one-time expenses for the early extinguishment of debt of $2.4 million (less tax effects of $0.8 million), or $.01 per share after tax. Such one-time expenses include the write-off of unamortized deferred debt issuance costs less the gain on the termination of related interest rate swap agreements. The Company’s interest rate on borrowings under the Revolving Credit Facility is LIBOR plus 40 basis points. The Company also pays certain annual agency and facility fees. At December 31, 2007, the Company’s credit rating from Standard & Poor’s was BBB- and from Moody’s was Baa3. The Revolving Credit Facility requires that the Company satisfy certain financial covenants including an interest coverage ratio (EBITDA divided by interest expense) of higher than 3X and a leverage ratio (Debt divided by EBITDA) lower than 3.25X; at December 31, 2007, such ratios as defined in the Revolving Credit Facility were 15.46X and 1.21X, respectively. The Revolving Credit Facility also includes limitations with respect to, among other things, (i) indebtedness in excess of $50.0 million for capital leases, $450.0 million for general indebtedness, $200.0 million for acquisition indebtedness, (of which approximately $3.3 million, $1.1 million and $nil were outstanding at December 31, 2007, respectively), (ii) restricted payments including dividends on the Company’s Common Stock in excess of 50% of consolidated cumulative net income subsequent to July 15, 2005 plus $250.0 million, or approximately $605.7 million at December 31, 2007, (iii) required consolidated net worth equal to 50% of cumulative consolidated net income commencing April 1, 2005 plus 100% of net cash proceeds from equity issuances commencing April 1, 2005, plus $400.0 million, or approximately $784.4 million at December 31, 2007, (iv) creating or incurring liens, (v) making other investments, and (vi) acquiring or disposing of assets.



In conjunction with entering into the Revolving Credit Facility, the Company entered into interest rate swap agreements that fixed the Company’s LIBOR interest rate on $250.0 million, $250.0 million and $150.0 million of floating rate bank debt at 4.24%, 4.85% and 4.40%, expiring in July 2008, December 2008 and December 2009, respectively. In October 2007, the Company entered into interest rate swaps that fix the Company’s LIBOR interest rate on $250.0 million and $250.0 million of floating rate bank debt at 4.73% and 4.65% which go into effect in July 2008 and December 2008 and expire in July 2010 and December 2009, respectively. The fair value of such agreements was estimated by obtaining quotes from brokers which represented the amounts that the Company would receive or pay if the agreements were terminated. The fair value of all swaps indicated that termination of the agreements at December 31, 2007 would have resulted in a pre-tax loss of $11.4 million; such loss, net of tax of $4.4 million, was recorded in accumulated other comprehensive income.



The Company’s primary ongoing cash requirements will be for operating and capital expenditures, product development activities, repurchase of its common stock, funding of pension obligations, dividends and debt service. The Company may also use cash to fund all or part of the cost of future acquisitions. The Company’s debt service requirements consist primarily of principal and interest on bank borrowings. The Company’s primary sources of liquidity are internally generated cash flow, the Company’s Revolving Credit Facility and the sale of receivables under the Company’s accounts receivable agreement described below. In addition, the Company had cash and cash equivalents of $183.6 million and $74.1 million at December 31, 2007 and 2006, respectively, the majority of which was in non-U.S. accounts as of December 31, 2007. The Company expects that ongoing requirements for operating and capital expenditures, product development activities, repurchases of its common stock, dividends and debt service requirements will be funded from these sources; however, the Company’s sources of liquidity could be adversely affected by, among other things, a decrease in demand for the Company’s products, a deterioration in certain of the Company’s financial ratios or a deterioration in the quality of the Company’s accounts receivable.

The Company expects that capital expenditures in 2008 will be approximately $95.0 million. The Company may also use cash to fund part or all of the cost of future acquisitions. On January 19, 2005, the Company announced that it would commence payment of quarterly dividends on its common stock of $.015 per share. The Company paid its fourth 2007 quarterly dividend in the amount of $2.7 million or $.015 per share on January 2, 2008 to shareholders of record as of December 12, 2007. Cumulative dividends declared during 2007 were $10.7 million. Total dividends paid in 2007 were $10.7 million including those declared in 2006 and paid in 2007. The Company intends to retain the remainder of its earnings to provide funds for the operation and expansion of the Company’s business, repurchase of its common stock and to repay outstanding indebtedness. Management believes that the Company’s working capital position, ability to generate strong cash flow from operations, availability under its Revolving Credit Agreement and access to credit markets will allow it to meet its obligations for the next twelve months and the foreseeable future.


MANAGEMENT DISCUSSION FOR LATEST QUARTER


Results of Operations



Quarter and nine months ended September 30, 2008 compared to the quarter and nine months ended September 30, 2007



Net sales were $863.7 and $2,481.2 in the third quarter and first nine months of 2008 compared to $733.9 and $2,073.8 for the same periods in 2007, an increase of 18% and 20% in U.S. dollars, respectively, and 16% and 17% in local currencies, respectively. Sales of interconnect products and assemblies (approximately 91% of sales) increased 19% in U.S. dollars and 17% in local currencies in the third quarter of 2008 compared to 2007 ($786.2 in 2008 versus $659.4 in 2007) and 21% in U.S. dollars and 18% in local currencies in the first nine months of 2008 compared to the same period in 2007 ($2,258.0 in 2008 versus $1,862.9 in 2007). Sales increased in all of the Company’s major end markets including the mobile communications, military/aerospace, telecommunications and data communications and industrial/automotive markets. Sales increases occurred in all major geographic regions and resulted from the continuing development of new application specific solutions and value added products, and increased worldwide presence with the leading companies in target markets. Sales of cable products (approximately 9% of sales) increased 4% and 5% in U.S. dollars and 6% in local currencies in both the third quarter and first nine months of 2008, respectively, compared to the same periods in 2007 ($77.5 and $223.3 in 2008 versus $74.5 and $210.9 in 2007). This increase is primarily attributable to the impact of increased sales of coaxial cable products for the broadband communications market resulting primarily from increased capital spending by international cable operators for network upgrades and expansion.



Geographically, sales in the United States in the third quarter and first nine months of 2008 increased approximately 3% and 2% compared to the same periods in 2007 ($294.5 and $886.2 in 2008 versus $285.2 and $865.8 in 2007). International sales for the third quarter and first nine months of 2008 increased approximately 27% and 32% in U.S. dollars, respectively, ($569.2 and $1,595.0 in 2008 versus $448.7 and $1,208.0 in 2007) and increased approximately 24% and 27% in local currency compared to the same periods in 2007. The comparatively weaker U.S. dollar for the third quarter and first nine months of 2008 had the effect of increasing net sales by approximately $15.9 and $64.0 when compared to foreign currency translation rates for the same periods in 2007.



The gross profit margin as a percentage of net sales was approximately 32.6% for both the third quarter and first nine months of 2008 and for the same periods in 2007. The operating margins in the Interconnect segment increased approximately 0.4% and 0.5% in the third quarter and first nine months of 2008, respectively, when compared to the same periods in 2007, primarily as a result of the continuing development of new higher margin application specific products, strong operating leverage on incremental volume and aggressive programs of cost control partially offset by cost increases resulting primarily from higher material costs. The operating margins for the Cable segment decreased by approximately 1.7% and 1.1% in the third quarter and first nine months of 2008, respectively, compared to the same periods in 2007. The decrease in margin for cable products is due primarily to the impact of higher material costs partially offset by the impact of price increases.



Selling, general and administrative expenses increased to $109.9 and $318.9 or 12.7% and 12.9% of net sales in the third quarter and first nine months of 2008, respectively, compared to $95.8 and $276.0 for the same periods in 2007 which represented approximately 13.1% and 13.3% of sales, respectively. The increase in expense in the third quarter and first nine months of 2008 is primarily attributable to increases in selling expense, including increased transportation costs as well as payroll and fringe related costs, resulting from higher sales volume, increased research and development spending relating to new product development and higher stock-based compensation expense.



Other expenses, net, for the third quarter of 2008 and 2007 were $3.3 and $4.7, respectively, and were comprised primarily of minority interests ($3.5 in 2008 and $3.7 in 2007), program fees on the sale of accounts receivable ($0.7 in 2008 and $1.3 in 2007) and agency and commitment fees on the Company’s Revolving Credit Facility ($0.5 in both 2008 and 2007) offset by interest income ($1.3 in 2008 and $0.8 in 2007).



Other expenses, net, for the first nine months of 2008 and 2007 were $7.8 and $11.5, respectively, and were comprised primarily of minority interests ($7.6 in both 2008 and 2007), program fees on the sale of accounts receivable ($2.4 in 2008 and $3.9 in 2007) and agency and commitment fees on the Company’s Revolving Credit Facility ($1.3 in both 2008 and 2007) offset by interest income ($3.3 in 2008 and $1.6 in 2007).



Interest expense for the third quarter and first nine months of 2008 was $9.8 and $29.6 compared to $9.4 and $27.4 for the same periods in 2007. The increases for the third quarter and first nine months of 2008 compared to the 2007 periods are attributable to higher average debt levels reflecting borrowings to fund stock repurchases in the first quarter of 2008.



The provision for income taxes for the third quarter and the first nine months of 2008 was at an effective rate of 28.6% and 29.2%, respectively. The provision for income taxes for the third quarter and the first nine months of 2007 was at an effective rate of 29.2% and 29.8%, respectively. The effective tax rates for the third quarter and the first nine months of 2008 were lower than the respective 2007 rates due primarily to an increase in income being generated in lower tax jurisdictions.



Liquidity and Capital Resources



Cash provided by operations was $310.7 in the first nine months of 2008 compared to $254.9 in the same 2007 period. The increase in cash flow related primarily to an increase in net income as well as an increase, in the 2008 period, in non-cash expenses including depreciation and amortization and stock-based compensation expense in addition to an increase in other long-term liabilities offset by a larger increase in the non-cash components of working capital. The components of working capital increased $91.4 in the first nine months of 2008 due primarily to increases of $74.9 in accounts receivable and increases of $60.1 and $30.4 in inventory and other current assets, respectively, which were offset by increases in accounts payable and accrued liabilities of $45.3 and $28.7, respectively. The components of working capital increased $65.2 in the first nine months of 2007 due primarily to increases of $67.2 and $11.9 in accounts receivable and other current assets, respectively, and an increase in inventory of $18.2 offset by increases in accounts payable and accrued liabilities of $29.1 and $3.0, respectively.



Accounts receivable increased $73.3, due primarily to an increase in sales levels and an increase due to acquisitions during the period, partially offset by translation resulting from the comparatively stronger U.S. dollar at September 30, 2008 compared to December 31, 2007 (“Translation”). Days sales outstanding was 70 days at September 30, 2008 and 69 days at December 31, 2007. Inventories increased $65.0 to $521.9, primarily due to the impact of higher sales activity as well as an increase due to acquisitions partially offset by Translation. Inventory days, excluding the impact of acquisitions, increased from 80 at December 31, 2007 to 82 at September 30, 2008. Other current assets increased $22.5 to $95.4 primarily due to an increase in short term cash investment balances as well as an increase in certain foreign tax receivables. Land and depreciable assets, net, increased $20.2 to $336.4 reflecting capital expenditures of $83.4, and fixed assets from acquisitions offset by depreciation of $61.2 and to a lesser extent from Translation. Goodwill increased $98.0 to $1,189.8 primarily as a result of adjustments relative to performance-based additional cash consideration on prior acquisitions of $99.9 in addition to acquisitions completed during the period resulting in an increase of $31.1. This increase was offset by a reclassification of $14.1 from goodwill to other long-term assets, which represents the fair value assigned to identifiable intangible assets associated with the Company’s acquisitions in 2007 and a reduction due to foreign currency translation of $18.9. Other long-term assets increased $16.5 to $60.4 primarily due to an increase in identifiable intangible assets resulting from 2008 acquisitions as well as intangible assets reclassified from goodwill as discussed above partially offset by amortization of the intangible asset balances. Accounts payable increased $49.8 to $345.2 primarily as a result of an increase in purchasing activity during the period related to third quarter sales levels offset by Translation. Total accrued expenses increased $45.1 to $269.1 primarily due to a net increase in accrued liabilities for performance-based additional cash purchase consideration associated with certain acquisitions of $36.5 as well as an increase in accrued salaries, wages and employee benefits partially offset by Translation. Accrued pension and post employment benefit obligations decreased $15.7 to $86.1 primarily resulting from a $20.0 contribution made to the Company’s pension plan in September 2008 and to a lesser extent from Translation partially offset by 2008 expense provisions. Other long-term liabilities increased $16.7 to $83.7 due primarily to higher minority interest liabilities and tax related liabilities.



For the first nine months of 2008, cash from operations of $310.7, net borrowings from the Revolving Credit Facility of $46.1 and proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $48.2 were used to fund purchases of treasury stock of $143.7, acquisition related payments of $100.4, capital expenditures of $83.0, purchases of short-term investments of $14.0, dividend payments of $10.6 and an increase in cash on hand of $47.1. For the first nine months of 2007, cash from operations of $254.9, net borrowings from the Revolving Credit Facility of $36.2, proceeds from the exercise of stock options including excess tax benefits from stock-based payment arrangements of $44.3 and proceeds from the disposal of fixed assets of $0.9 were used to fund capital expenditures of $76.7, acquisition related payments of $69.4, purchases of treasury stock of $87.1, dividend payments of $8.0, purchases of short-term investments of $4.6 and an increase in cash on hand of $90.5.



The Company’s senior unsecured Revolving Credit Facility is comprised of a five-year $1,000.0 unsecured revolving credit facility that is scheduled to expire in August 2011, of which approximately $760.0 was drawn at September 30, 2008. At September 30, 2008, availability under the Revolving Credit Facility was $225.2 after a reduction of $14.8 for outstanding letters of credit. The Company’s interest rate on borrowings under the Revolving Credit Facility is LIBOR plus 40 basis points. The Company also pays certain annual agency and facility fees. The Revolving Credit Facility requires that the Company satisfy certain financial covenants. At September 30, 2008, the Company was in compliance with all financial covenants under the Revolving Credit Facility, and the Company’s credit rating from Standard & Poor’s was BBB- and from Moody’s was Baa3.



As of September 30, 2008, the Company had interest rate swap agreements of $250.0, $150.0 and $250.0 that fix the Company’s LIBOR interest rate at 4.85%, 4.40% and 4.73%, expiring in December 2008, December 2009 and July 2010, respectively. In October 2007, the Company entered into interest rate swaps that fix the Company’s LIBOR interest rate on $250.0 of floating rate bank debt at 4.65% which go into effect in December 2008 and expire in December 2009. The fair value of swaps indicated that termination of the agreements at September 30, 2008 would have resulted in a pre-tax loss of $13.1; such loss, net of tax of $5.0, is recorded in accumulated other comprehensive loss.



A subsidiary of the Company has an agreement with a financial institution whereby the subsidiary can sell an undivided interest of up to $100.0 in a designated pool of qualified accounts receivable (the “Agreement”). The Company services, administers and collects the receivables on behalf of the purchaser. The Agreement includes certain covenants and provides for various events of termination and expires in July 2009. Due to the short-term nature of the accounts receivable, the fair value approximates the carrying value. At September 30, 2008 approximately $85.0 of receivables were sold and are therefore not reflected in the accounts receivable balance in the accompanying Condensed Consolidated Balance Sheets.



The Company’s primary ongoing cash requirements will be for operating and capital expenditures, product development activities, repurchase of its common stock, dividends and debt service. The Company may also use cash to fund all or part of the cost of future acquisitions as well as for liabilities for performance-based additional cash consideration on prior acquisitions. The Company’s debt service requirements consist primarily of principal and interest on bank borrowings. The Company’s primary sources of liquidity are internally generated cash flow, the Revolving Credit Facility and the sale of receivables under the Agreement. In addition, the Company had cash, cash equivalents and short-term investments of $246.2 million at September 30, 2008, the majority of which is in non-U.S. accounts. The Company expects that ongoing requirements for operating and capital expenditures, product development activities, repurchase of its common stock, dividends and debt service requirements will be funded from these sources; however, the Company’s sources of liquidity could be adversely affected by, among other things, a decrease in demand for the Company’s products, a deterioration in certain of the Company’s financial ratios, a decline in its credit ratings or a deterioration in the quality of the Company’s accounts receivable.



The Company maintains an open-market stock repurchase program (the “Program”) to repurchase shares of its common stock. In January 2008, the Company announced that its Board of Directors authorized an increase to the number of shares which may be purchased under the Program from 10 million to 20 million shares of common stock in addition to extending the Program’s maturity date from December 31, 2008 to January 31, 2010. The Company did not purchase any shares of its common stock during the three months ended September 30, 2008. During the nine months ended September 30, 2008, the Company purchased approximately 3.8 million shares of its common stock for $143.7. At September 30, 2008, approximately 7.8 million shares of common stock may be repurchased under the Program.



The Company made two dividend payments in the aggregate amount of $5.3 or $.030 per share during the three months ended September 30, 2008. Total dividends paid in 2008 were $10.6, which include dividends declared in 2007 and paid in 2008.



The Company made a voluntary cash contribution to the U.S. Pension Plan of $20.0 in September 2008. Cash contributions made in 2008 and in future years will depend on a number of factors including performance of plan assets. In August 2006, the President signed into law the Pension Protection Act of 2006. The Pension Protection Act is effective for plan years beginning in 2008 and did not have a material impact on the Company’s consolidated financial condition or results of operations.



The Company intends to retain the remainder of its earnings to provide funds for the operation and expansion of the Company’s business, to repurchase its common stock and to repay outstanding indebtedness. Management believes that the Company’s working capital position, cash on hand, expected continuing ability to generate strong cash flow from operations, availability under its Revolving Credit Facility and access to credit markets will allow it to meet its obligations for the next twelve months and the foreseeable future.



Environmental Matters



Certain operations of the Company are subject to environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with all applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition or results of operations.



The Company is currently involved in the environmental cleanup of several sites for conditions that existed at the time Amphenol Corporation was acquired from Allied Signal Corporation (“Allied Signal”) in 1987 (Allied Signal merged with and into Honeywell International, Inc (“Honeywell”) in December 1999). The Company and Honeywell were named jointly and severally liable as potentially responsible parties in relation to such sites. The Company and Honeywell 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 costs incurred relating to these three sites are reimbursed by Honeywell based on the indemnification provisions of the Agreement and Plan of Merger entered into in connection with the acquisition of the Company in 1987 (the “Honeywell Agreement”). For sites covered by the Honeywell Agreement, to the extent that conditions or circumstances occurred or existed at the time of or prior to the acquisition in 1987, Honeywell is obligated to reimburse the Company 100% of such costs. Honeywell representatives continue to work closely with the Company in addressing the most significant environmental liabilities covered by the Honeywell Agreement. Company 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 consolidated financial condition or results of operations. Substantially all of the environmental cleanup matters identified by the Company to date, including those referred to above, are covered under the Honeywell Agreement.



Safe Harbor Statement



Statements in this report that are not historical are “forward-looking” statements within the meaning of the federal securities laws, and should be considered subject to the many uncertainties that exist in the Company’s operations and business environment. These uncertainties, which include, among other things, economic and currency conditions, market demand and pricing and competitive and cost factors are set forth in Part I, Item 1A of the Company’s 2007 Annual Report on Form 10-K. Actual results could differ materially from those currently anticipated.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



The Company, in the normal course of doing business, is exposed to the risks associated with foreign currency exchange rates and changes in interest rates. There has been no material change in the Company’s assessment of its sensitivity to foreign currency exchange rate risk since its presentation set forth, in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in its 2007 Annual Report on Form 10-K. As of September 30, 2008, the Company had interest rate swap agreements of $250.0, $150.0 and $250.0 that fix the Company’s LIBOR interest rate at 4.85%, 4.40% and 4.73%, expiring in December 2008, December 2009, and July 2010, respectively. In October 2007, the Company entered into interest rate swaps that fix the Company’s LIBOR interest rate on $250.0 of floating rate bank debt at 4.65% which go into effect in December 2008 and expire in December 2009. At September 30, 2008, the Company’s average LIBOR rate was 4.51%. A 10% change in the LIBOR interest rate at September 30, 2008 would have the effect of increasing or decreasing interest expense by approximately $0.4. The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2008, although there can be no assurances that interest rates will not significantly change.



Item 4. Controls and Procedures



Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the period covered by this report. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management, including the Company’s principal executive and financial officers, to allow timely decisions regarding required disclosure. There has been no change in the Company’s internal controls over financial reporting during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.


CONF CALL

Diana G. Reardon

Thank you. Good afternoon. My name is Diana Reardon and I am Amphenol’s CFO. I am here together with Martin Loeffler, our CEO and Adam Norwitt, our COO, and we would like to welcome everyone to our third quarter earnings call. Q3 results were released this morning. I will provide some financial commentary on the quarter and Martin and Adam will give an overview of the business and current trends. We will then have a question-and-answer session.

The company had a record third quarter, exceeding the high end of our guidance in both sales and earnings per share. Sales for the quarter were $864 million, up 18% in U.S. dollars and 16% in local currencies over the third quarter of 2007 and from a sequential standpoint, up 2%.

Organic sales growth, excluding acquisitions and currency effects in Q3 over the prior year was 12%. Breaking down sales into our two major components, the interconnect business, which comprised 91% of our sales in the quarter, was up 19% compared to last year. Interconnect sales increased in most of the company’s end markets. Our cable business, which comprised 9% of our sales, was up 4% from last year as a result of increases in international broadband cable television markets.

Operating income for the quarter was strong at $171 million, compared to $143 million last year. Operating margin was 19.8% compared to 19.5% last year. The margin improvement relates to increased margins in the interconnect business.

From a segment standpoint, the cable segment margins were 11%, down from 12.7% in Q3 of ’07, and 11.5% in Q2 of 2008. The margin reduction reflects the significant impact of higher material costs which, for this business, are primarily aluminum, plastics, and copper, a portion of which has been offset by price increases. While plastic costs have continued to increase, metal prices have declined at the end of the third quarter. In addition, the company recently implemented further domestic sales price increases. To the extent that material prices stay at current levels, we would expect some margin improvement in Q4 as a result.

The interconnect segment margins were 22.3%, up 40 basis points from last year. The achievement of these strong margins, given the current inflationary cost environment, is a significant accomplishment and reflects the company’s dual focus on driving strong top line growth at higher margin performance enhancing interconnect solutions, in addition to a very strong focus on all elements of cost. Our operating units continue to work hard every day to keep our overall cost structure low, providing the company with increased flexibility in dealing with uncertain market conditions. Overall, we are very pleased with the company’s margin achievement.

Interest expense in the quarter was $9.8 million, compared to $9.4 million last year. The increase over the prior year relates primarily to higher average debt levels in the 2008 quarter reflecting borrowing to fund Q1 stock repurchases. Other expense was $3.3 million compared to $4.7 million in Q3 of 2007 and $2.3 million in Q2 of 2008. The decrease from last year relates primarily to decreases in fees on the company’s accounts receivable securitization program and higher interest income. The increase for Q2 relates primarily to higher minority interest expense.

The company’s effected tax rate in the third quarter was 28.6%, down from 29.5% in the first half of 2008. The lower tax rate reflects adjustments to tax reserves relating to the completion of the audit of certain of the company’s tax returns. For the third quarter and the year 2007, the company’s effective tax rate was 29.2% and 29.5% respectively. We currently expect a tax rate of 29% for the full year 2008.

Net income was $113 million, approximately 13% of sales, a very strong performance on any industry comparative basis. And diluted earnings per share for the quarter was $0.63, up 26% from last year. The company continues to be an excellent generator of cash. Cash flow from operations was $105 million in the quarter. This is a net of a $20 million contribution to the company’s U.S. retirement plan.

For the nine months ended September 30th, the operating cash flow was approximately 97% of net income. The cash flow from operations and $34 million in proceeds and tax benefits from option exercises were used to fund capital expenditures of $33 million, $1 million in acquisition related expenditures, debt reduction of $48 million, and $5 in dividend payments. In addition, cash and short term investments increased $47 million to $247 million at the end of the quarter.

In addition to its strong operating cash flow and cash investments, the company has additional liquidity in the form of availability under its revolving credit facility. The company’s $1 billion revolving credit facility is provided by a 25-bank group and expires in 2011. Availability under the facility was $225 million at the end of September. The company has more than sufficient liquidity to meet all of its needs. Borrowing under the facility was $760 million at the end of September, of which $650 million is swapped to fixed rates through December 2009 and July of 2010.

The remaining borrowings are at a spread over LIBOR rates. The company also has $100 million receivable securitization program under which $85 million in receivables were sold at the end of September. Fees on receivables sold at are a spread over commercial paper rates. As a majority of the company’s borrowings are at fixed rates, we did not anticipate this occurrent tightening of credit markets and the related elevation of short-term rates will have significant impact on the company.

The balance sheet is in good shape. Accounts receivables days outstanding were 70 days at the end of September, up one day from the end of the second quarter; reflecting normal heavier weighting of sales in Q3 towards September. Inventory increased slightly from Q2 levels and inventory days remained at 82 days. That was $771 million at the end of the quarter compared to $722 million at year end reflecting borrowings to fund the stock buy back in the first quarter. That was down about $48 million from the end of Q2.

The company’s leverage and interest coverage ratios remain very strong at 1.1 times and 17 times respectively. And EBITDA in the quarter was approximately $201 million. Orders for the quarter were $865 million of book to bill ratio of approximately 1 to 1. Certainly from a financial perspective it was an excellent quarter.

Before Martin and Adam provide an overview of the business, I would like to make a few comments relative to the impact of foreign exchange rates and tax rates on our Q4 guidance. As is the company’s practice, our guidance is based on foreign exchange rates at the time guidance is given. Accordingly, the new Q4 guidance incorporates a much stronger U.S. dollar relative to the euro and the Korean wan than the guidance given in July. This has the impact of reducing U.S. dollar sales per Q4 by about 4% or $35 million versus the prior guidance.

In addition, on a quarter over quarter basis, Q3 versus Q4, the translation impact is a reduction of about 3%. I would also like to point out that the tax rate assumed in the Q4 guidance is about the same as the rate in Q3 or 28.5% bringing the tax rate for the full year to about 29%.

Martin and Adam will now provide an overview of the business.

Martin H. Loeffler

Well, thank you very much Diana and thank you all for joining us at this traditional conference call at the time of our earnings release. As in the past, I will highlight some of our third quarter achievements and Adam will then discuss the trends and the progress in the markets that we serve and I will close with comments on the outlook for the fourth quarter and the full year 2008.

Overall, we are extremely pleased with the third quarter results. They were strong in all respects. We set new records in sales and earnings and we sustained our long-term trend in industry leading growth and profitability in an environment that is increasingly challenging and unstable. We are also very pleased that Amphenol was in the third quarter recognized for its sustained and consistent performance over many, many years by inclusion of Amphenol’s stock in the S&P 500.

Some highlights to sales. Sales increased a strong 18% over prior year in a truly uncertain demand environment. Growth was broad based across nearly all of our served markets and the strongest growth we achieved in the global communications market including the mobile device and mobile infrastructure markets as well as in the military and the aerospace markets. We are very pleased also that sequentially we increased our sales by 2% over our record achievements in the second quarter.

This is particularly pleasing as typically the third quarter is, seasonally, a slower period. It is hard to say in our current environment what is typical but clearly we are very pleased about that sequential increase. This increase over the second quarter was primarily driven by some earlier than expected increase demand in the mobile device market and some effects from the infrastructure rebuild especially in cable following the hurricane in the Southwest.

We are very pleased with these results as they are clearly showing that we continue to gain position through a strong focus on advanced technology across all of our served markets. Our new products are really gaining momentum and we are very pleased to see the customers accept them on a broad basis.

We are also benefiting from our diversity and broad global presence with our continued strength in emerging markets. India, China, South America and Africa are clearly contributing strongly to the growth that we have been able to achieve. Also, the pipeline of its acquisitions continues to be healthy. We have not seen in the kind of talking acquisitions that we are talking about and that we are looking for any change really in valuations at that point and time. Obviously, owners and entrepreneurs have their opinion what prices they would like to sell their companies on timing of some of these irons that we have in the fire is not very easy to predict, but we are confident that our acquisition strategy is very much alive.

We are also very pleased with the continued profitability and cash flow, which remains strong in the third quarter. We achieved a strong, 19.8% operating margin despite a continuing difficult cost and pricing environment. Yes, we have seen commodity prices and costs coming down, but we feel that there is a strong lag between what we are buying—which are converted material—to the fewer commodities pricing that is established.

We are very pleased with the strong increase of EPS, 26% over prior year to a new record of 63 cents a share.

Net income, as a percent of sales, was 13%, which is another indication of the financial strength of the company. Diana mentioned that our cash flow remained also strong, at 105 million essentially net income, and most of that reinvested in our business, $33 million dollars in new capital for new products that certainly drive our future growth.

We feel that the strong profitability is a direct result of our excellent operating leverage on incremental sales. It is our continued focus on high-evaluated segments of the markets, and our continued scrutiny of all elements of costs. Most importantly, in this environment though, it is a result of our dynamic organizational structure that allows us to adjust very, very quickly to changing market environments.

Adam will now comment on the trends in the various market segments. Adam.

R. Adam Norwitt

Thank you very much Martin and Diana, and just to reiterate what Martin said, we feel very pleased with our strong performance in the third quarter, and this performance really was a result from our focus, and our continued focus on performance enhancing technologies for our customers, a strong drive for end-market diversification and a continuous drive for geographic expansion. Amphenol continues to make progress in all these areas, which have helped to create these strong results and challenging circumstances.

I will now review the progress in each of the served markets in which we participate. The military and aerospace market for Amphenol represented 19% of our sales in the quarter, and sales increased in the market a very strong 18% over prior year. Demand remains healthy in the military aerospace market, driven in large part by continued military equipment deployment and refurbishment, including especially that related to ground vehicles and new communication systems upgrades.

While we see that distribution, which is an important channel for that market, may be conservative with their inventory positions in light of the general economic conditions, we still feel good about the momentum in that market.

Although the timing of government funding releases could impact demand in the short-term, we believe that our broad program participation in all segments of the military and aerospace market will drive growth into 2009.

In the industrial market, which represented 11% of our sales, sales increased 8% over prior year. In this market, OEM program gains especially in energy related and rail mass transit applications were partially offset by moderate demands in other segments of the industrial market. We feel very good about the progress we make, especially in alternative energy applications, but clearly, there is some impact in this market related to construction equipment. We expect these growth segments to continue to drive demand in the industrial market into the future.

The automotive market represented for Amphenol 7% of our sales in the quarter. Sales in this market were essentially flat to prior year, but were down in local currencies. We experienced, as expected, a seasonal softness in the market in the third quarter, and in addition, there was a more pronounced slowing in vehicle production, which offset the expected ramp ups of new products and new customers.

The near-term outlook for the automotive market for vehicle production levels is clearly uncertain. Nevertheless, we are encouraged about the longer-term outlook for Amphenol in this market, due to our increased presence on the electronics sales and materials in the car, as well as our strong presence in the new, hybrid platforms, which will be coming out over the next several years.

In the broadband market, the broadband communication over hybrid fiber-coax networks, this represented 10% of our sales, and sales increased a healthy 10% over prior year. As Martin indicated, we saw some demand in the quarter relative to rebuild activities from the storms, but in addition, we had ongoing price increases in the market, but which were offset by continued pressure on raw materials, especially that related to plastics.

As in the past, we think that availability of capital could potentially impact the broadband market going forward, and we do expect that demand in the fourth quarter will seasonally moderate. Nevertheless, we have increasing high technology interconnect content in broadband equipment, which continues to creates new opportunities for Amphenol and we see that new high technology interconnect drive helping to drive growth in that segment.

The information technology and data communications market represented for Amphenol 22% of our sale. Sales in this market increased to a strong 12% over prior year, which is driven by accelerating new customer and new product ramp up as well as increases in our positions with key customers.

We continued to build in this market on our distinct competitive advantage of offering a complete interconnect system architecture. There is no question that our offering in this market is creating a tremendous momentum among all of our leading customers. While we see some moderation of demand in certain corporate and carrier related segments of the market, our continued achievement and broad design wins with new high speed products, creates confidence for further expansions of our market position in the IT and Telecom market.

The mobile networks market represented for us 14% of our sales in the quarter and it increased at very strong 23% over prior year, and this is in a market with very moderate growth. Most of our customers are reporting flat or very minimal growth, as we continue to take share in this market. We are benefiting from the strong demand and site installations especially in emerging markets like China and India, as well as from a broad presence on high volume as well as latest generations 3G equipment platform.

We do expect some seasonal moderation in the fourth quarter but we believe that subscriber growth and new data services combined with the new design wins that we continued to achieve provide a good future outlook for the mobile networks market.

The mobile devices market, represented for us 17% of our sales in the quarter and sales increase was an extremely strong 44% over prior year.

Our strong growth in this market continues to be driven by a successful introduction of a broad range of innovative, new products across a wide variety of customers and a wide variety of mobile phone platforms.

We expect moderating growth rates in the fourth quarter, but this is somewhat based on the stronger than expected demand that we saw in the third quarter. In this market we are truly excited about the innovative technologies in mobile devices which are driving growth for Amphenol in this quarter and beyond.

With that I will turn it to Martin, who will now provide some comments on the outlook for the remainder of 2008.

Martin H. Loeffler

Thank you very much, Adam. Clearly in summary, we are very, very proud of our organization as we continue to execute well and achieve superior growth and profitability in an increasingly challenging and unstable demand environment. In such an environment our distinct competitive advantage will serve us well. Our leading technology, our increasing precision with customers in diverse markets, our worldwide presence, and our flexible cost structure and entrepreneurial management.

Forecasting in this environment, though, becomes very difficult. We though, feel very confident in our own ability and the ability of our organization to meet the challenges and to take advantage of the continuing opportunities that we see in front of us.

Accordingly, as far as outlook is concerned we are confirming the high-end and narrowing the range of our previous outlook for the full year 2008, and expect the following based on stable currency exchange rate. And the exchange rate that we see at the beginning of this quarter.

For the full year 2008, we expect sales in the range of 3.292 billion to 3.308 billion, an increase of 15% to 16% for the year.

EPS, we expect in the range of $2.36 to $2.38, an increase of 22% to 23% over 2007. This is a very strong and new record year for Amphenol under this guidance.

The guidance for the full year is based on the stronger third quarter results and the fourth quarter that incorporates the impacts of a significantly stronger U.S. dollar, as Diana outlined.

In other words, at the same exchange rate that we had in July, Amphenol would have reported another peak and rise guidance at this point in time. However, the operational performance increase that we – above the guidance – that we achieved in the third quarter is essentially offset in the fourth quarter by the currency exchange rates that we are now facing.

So in essence, we really have not changed our outlook from an operational standpoint that we gave in July.

For the fourth quarter, consequently, we expect our sales in the range of 810 to $826 million at this currency exchange rate, and EPS in the range of .58 to $0.60 a share.

Overall, we are very encouraged since we have, really, not changed what we assumed would happen sometime this year, later in the second half, a slower demand level, and very pleased that we are well positioned and encouraged by our achievements in the third quarter and prior, to build a strong fundament for our growth and the potential to continue, especially in this demanding environment, to continue to create substantial value for our shareholders.

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