安費諾 (APH) 2003 Q1 法說會逐字稿

Good afternoon, welcome to the first quarter operating results conference call.

All participants will be in a listen-only mode until the question and answer period.

At the request of Amphenol Corporation, this call is being recorded.

If you have any objections you may disconnect at this time.

I would like to introduce your moderator, the Executive Vice President and CFO, Mr. Edward Jepsen.

Sir, please proceed when ready.

Yes, thank you very much and good afternoon everyone.

My name is Edward Jepsen, the CFO of Amphenol and I'm together with Martin Loeffler the CEO.

The first quarter 2003 results were released earlier this morning.

I will provide some financial commentary on the quarter and Martin will give an overview of the business and current trends and then we'll have a Q&A.

The first quarter of 2003 was an excellent quarter notwithstanding the continuing challenging business environment.

Sales for the quarter were $278 million, that's up 9% from the $256 million in the first quarter of last year.

The sales increase includes a positive currency effect of $16.8 million.

Breaking down sales into our two major sectors, the connector, interconnect portion of the business which comprises 89% of sales was up 15% compared to a year ago with increases in all major markets and all major geographic regions.

Our coaxial cable business for broadband networks which comprises 11% of sales was down 25% from a year ago, as the domestic and international market for cable for broadband cable television systems continues to be challenging.

The comparison is also against a strong first quarter last year.

On a sequential basis, the coaxial cable business was down 6% from the fourth quarter of last year.

Operating income, EBIT for the quarter was a strong $45.2 million, compared to $40.3 million last year.

The operating margin or EBIT margin was 16.3%, that's up from 15.7% from a year ago first quarter.

On any industry comparative basis and considering the economic environment, profitability continues to be very good, primarily because of the continuing development of new higher margin application-specific products and continuing aggressive programs of cost control.

Interest expense for the quarter was $8.1 million, compared to $12.8 million last year, reflecting lower rates and lower debt levels.

Other expense was $1.7 million, compared to $1.2 million last year.

Tax expense was $12 million, at an effective rate of approximately 34%, that's a .5% lower than last year's effective rate.

Diluted earnings per share was 54 cents a share, up 35% from the 40 cents of a year ago.

During the quarter, we generated a very strong cash flow from operations of $35.8 million. $6.6 million of that was used for capital expenditures in the quarter, leaving a free cash flow of $29.2 million.

Of the free cash flow, $15.7 million was used for acquisitions including the custom assembly business from Insilco corporation in late March and we increased our ownership from 90% to 95% in our Korean subsidiary that makes interconnect products for mobile handsets.

Insilco was only consolidated from the last week in March and, therefore, contributed approximately 1 million sales in the first quarter.

The balance of free cash flow was used to reduce our accounts receivable facility by $2.5 million and increase cash balances on the balance sheet by $11.5 million, compared to the December 31 balances.

The balance sheet is in good shape, cash balance at March 31 is $2 million, and as indicated that's up 11 1/2 from the year-end balance.

Accounts receivable are up due to the increased activity and the Insilco acquisition, but the day's sales outstanding is essentially unchange from the last quarter.

Inventory is up slightly a little over $3 million in the quarter, due solely to the Insilco acquisition.

The total debt outstanding at March 31 was $649 million, up 4.9 million from the year-end balance.

As previously announced, we are pursuing a refinancing of our senior credit facilities, including the redemption of our senior subordinated notes.

The goal of the refinancing is to extend the maturity dates from our current loan agreements.

And finally, orders for the quarter reflected a positive book-to-bill ratio of approximately 1.02 to 1.

Again, a very good quarter and a very good way to start the year.

With that, I'll turn it over to Martin for his comments.

Thank you very much, Ed and good afternoon.

Welcome to our traditional conference call related to our earnings release of the first quarter of 2003.

As Ed said, I will review some of the highlights of the first quarter 2003 very briefly, and then discuss the trends and our outlook in the major markets that we serve.

I'd like to conclude with some comments on our outlook for the second quarter and the full year 2003.

As Ed said, we had an excellent start of the year 2003 with an excellent first quarter performance.

Our sales in the first quarter were up 9% as Ed said, and sequentially up 4%.

We're very pleased with that trend considering that the economic environment remains still uncertain.

I would characterize it somewhat as stop and go.

January was a very strong month, February followed with a relatively softer performance, and then we finished up with a strong March.

So there is no underlying strong trend as we can discover it yet in the markets that we serve.

It's certain of the market that we serve.

Our growth in the first quarter was primarily driven by our interconnect products which represent about about 89% of our total sales.

Interconnect products were up strongly 15% in the first quarter, or 7% in local currency over the prior year.

We're very pleased to report that this growth was very broad-based with growth in essentially all our served markets and regions of the world.

On the other hand, the coaxial cable business remained soft and actually softened further in the first quarter of this year compared to the fourth quarter of last year.

And certainly had diminishing fact in the total growth of our company.

We're very pleased also to continue to have a strong operating margins. 16.3% continues to be at the high end of what we can find in the industry today.

And these levels are achieved in spite of the low volumes in coaxial cable, in spite of inflationary increases, in material prices, and certainly our attribute to our continuing cost-control measures and to provide value to our customers in form of complete interconnect solutions.

EPS increased strongly 35% over prior year and this is the fifth quarter in a row of sequential EPS increase.

We're very pleased with that performance and it is not only off our strong operating performance, but also a result of our financial leverage that we have in the business, as Ed mentioned earlier, interest came down because of our continued reduction of debt.

The profitability was real, we generated cash that we could spend in capital equipment for new application-specific products.

Actually, we stepped up our capital expenditures in the first quarter over the run rate of last year because we see good new opportunities with excellent returns.

At the same time, we spent some of that cash flow on the acquisition of Insilco which again will strongly contribute to our further thrust into more value-added solutions that we would like to provide to our customers.

Let me now talk a little bit about the various markets that we serve, the trends and the outlook that we see.

In broadband communications we continue -- which is essentially the sales of coaxial cable to the cable television operators in North America and internationally.

In this market, we continue to see softness, both in North America, as well as, in the international markets, due to curtailing capital expenditures of the operators in those markets.

Pricing, though, is relatively stable and remains stable, although many cable companies outside of the coaxial cable side, have seen price increases.

We have not seen price increases in that market so far in spite of some inflationary pressures.

We also are very pleased to see that Comcast has begun upgrading their AT&T systems that they acquired last year and that is a positive trend, although more than offset by some of the lower spending rates and other MSOs.

We expect the demand to remain relatively stable at current levels in the next quarter.

However, long-term outlook is positive because these networks are clearly the networks with the broadest bandwidth available today, therefore suitable for voice, data and video and as soon as IP technology will come into those systems, we believe that systems operators will continue to upgrade their networks to provide all three features and thereby, again, finding revenue enhancing opportunities.

In the wireless telecom and datacom market which represent about 36% of our total sales, we are essentially participating in the mobile phone markets, the mobile network markets, as well as the Internet equipment markets.

Let me first refer to the mobile phone market.

That is an area that continues to be strong for Amphenol, as you may recall, last year, we grew about 18% over the prior year.

We grew another 18% in the first quarter over the prior year's quarter in local currencies or 28% -- excuse me, 18% in constant dollars, and 28% in U.S. dollars in that market year-over-year.

And we're very pleased with that trend because it confirms the success of our strategy to designing in more content per phone because the market is still not growing at that rate itself.

We also are participating with the major winners in this market at this point in time, which certainly gives us stronger growth in that area.

Also, we are very pleased to see the opportunities in wireless LAN as many of the laptops, PDAs, especially laptops, though, are equipped nowadays with wireless LAN interconnect solutions for which we have developed new products that are in high demand at this point in time.

We see continued strength in this market for the next quarter, and the rest of the year.

The more our infrastructure market is somewhat slower, and continues to be at the slower pace.

Although we have grown in local currencies at 4% or in U.S. dollars 11% year-over-year, we still see that market more a project-oriented at that point in time rather than a broad-based build-out.

The build-out will come, though, because the number of subscribers are growing continuously.

Capacity that is being sold is now down at the operator level, and new services will be demanded by the subscribers ultimately, both on the data communications side as well as on the video side.

That will spur new technologies, especially third generation technologies in the future.

So we are very confident that we will continue to perform well in this market because we have a broad customer base in that area and are designed in with a very broad range of products tailored to that market.

In the Internet--related market we have seen also year-over-year growth and we're particularly pleased with the sequential growth of 8% in U.S. dollars, 6% in local currencies in the first quarter.

That was primarily driven by our new products.

By our new products for high-speed interconnect solutions.

We have developed speciality cable for high-speed solutions.

Most recently, we entered into a license agreement also with Gore to develop and produce cable for Infiniband applications, actually, this is a general high-speed applications, not only tailored to Infiniband itself and we see excellent opportunities here in the near term to grow in that market segment, which generally stays relatively fat.

That's the market for service storage systems, rather than data communication equipment.

We also feel positive about the outlook in this market because we have a very diverse customer base and are considered a preferred supplier to many of the original manufacturers, OEMs, and contract manufacturers.

As well as, to the ODMs.

So having this broad customer base always gives benefit, especially as a global supplier as Amphenol.

Outside of the communications areas, we have strong on the line performance in all these markets.

The military, aerospace, industrial and automotive markets.

First in the aerospace and defense market, it was up strongly, 15% over last year, 9% in local currency, and also sequentially up almost double-digit numbers.

These sales -- this sales growth was driven primarily by the funding of new programs.

The upgrades of existing aircrafts, new helicopters, new aircraft like the European fighter aircraft, new tanks and upgrades of tanks.

We have seen very little demand coming from the military, recent military operation.

This is still to come as many of the shelfs and the inventories have been depleted during that military action.

However, demand with the exception of some of the ordinance, which means the smart bomb area, we haven't seen a broad based strong demand as a result of that military operation.

On the other hand, we are very pleased to say that whoever has followed that war on television on every equipment that you have seen there, be it from the U.S. or from the UK, the tornado, the challenger tank from the UK, or our M-1 tank, the various aircraft and helicopters, Amphenol is present in just every single device that was used there.

And equipment that was used.

And we're designing in more products in new equipment.

Such as the joint tactical radio systems, the tactical operating centers, all battlefield communication systems being developed here, in France, in the UK, that require very state-of-the-art technology, especially driven by fiberoptic technology at this point in time.

We have the premier position in fiberoptics for harsh environment applications.

We remain very positive about that segment for the near term as well as for the long-term as many of these programs are just in initial phase of upgrade and deployment.

The industrial and automotive market were also up very strongly, 10% in local currency in the first quarter over last year, 23% in U.S. dollars.

And also strong double-digit sequential growth.

In automotive, the primary drivers were -- was our new generation of interconnect solutions for air bags.

This new generation incorporates elements that we have transferred from the aerospace industry.

To be more performed in vibration to be more performant and secure in its application.

A great advantage that we bring to that market.

And we see continued opportunities for growth both in North America as well as in Europe for that product.

As it relates to the telematic and communications build-out for satellite, radio and GPS networks in cars, we're also continuing to build our leadership with our radio frequency and antenna technology.

We're very confident that the automotive segment will remain strong for us because both of these areas where we are considered a needs supplier continue to be strong for us and the total sales of our automotive business represents now about 11% of our total sales.

Our industrial business is also strongly up in the quarter.

Year-over-year and sequentially in double-digit numbers.

We are benefitting clearly from the increased sophistication in the industrial market that requires more advanced interconnect solutions that Amphenol can provide, but some of the smaller companies, traditional suppliers, cannot provide any longer.

We see a continued opportunity in that area, especially with our new Radsoc technology, radio socket, it is called.

That allows power distribution in a much more miniaturized form with higher amperage than in any previous traditional technology.

The applications for that range in automotive applications for electrical car, as well as many power applications, in communication and industrial equipment.

It's an excellent new product that we have brought to market where we see significant growth.

We're excited about the industrial market because it's not only the underlying trends that is improving in that market, but also our technology that we can bring to bear in this market that will drive the growth in the future.

From a geographic performance standpoint, we are also very pleased to say that we have obtained growth in all regions of the world: In North America, Europe and in Asia.

In summary, we had a very strong first quarter, a good start of the year and gave us confidence that the rest of the year should be good if conditions remain approximately the same as they are today.

If they improve, obviously we will share strongly in that improvement.

So I would like to confirm that the outlook we have given previously, which was a sales increase of about 4 to 7% for the year, we believe now that it is more at the higher end of that range than at the lower end.

And we have previously also said that EPS would grow somewhere between 20 to 25% for the year, and we would like to confirm that outlook as well.

And that certainly excludes the expenses that are related to the refinancing of our debt.

From an operating performance, we are very, very confident in Amphenol and in our ability to perform well because of our excellent technical capabilities, of our strong global presence, of our preferred and increasingly expanded preferred relationship with our customers, and our long-term culture of cost control that will keep margins and profitability strong.

In the short-term for the second quarter, we foresee a sequential improvement on the top line, as well as a possible also improvement in EPS.

When I say "possible" we certainly recognize that the low volume in coaxial cable as well as the inflationary pressures put some pressures on margins.

Nevertheless we're very positive about our opportunities also in the second quarter I would like to just caution a little bit on that margin side for the second quarter, long-term outlook is certainly very strong.

Thank you very much, and for your interest and with this, I would like to open up for any questions that you may have.

Thank you, sir.

At this time, we would like to begin the question-and-answer session.

If you would like to ask a question at this time, please press star 1 on your touch-tone phone and you will be announced prior to asking your question.

If you withdraw your question, please press star 2.

Once again, if you have any question, please press star 1 at this time.

Our first question is from Steven Fox from Merrill Lynch.

Yes, good afternoon.

Good afternoon, Steve, how are you?

Good, very good, Martin.

On the hand set side, you continue to grow that business much faster than the rest of your business so it must be increasing as a percent of sales.

Can you give us a sense of where it is in terms of your total business and how big it could be as a percent of the total by year-end given the momentum you have there?

Yes, well we have had about 18% growth last year, we continue to have, again, an 18% growth this year.

And we anticipate that we will be able to grow somewhere in the double-digit number.

Obviously, that is a little bit of a seasonal business as well, as you know, and as long as the driving forces, for example, in China with about 5 million subscribers per month, continues, we will continue to see strength.

If this softens, which we have no indication for, obviously that may change the trend overall.

But we believe right now the business is about 9% of our total sales, and we certainly can get that up above the 10% level if it continues at that trend, which is very likely to continue.

And then from the standpoint of looking at the Times Fiber business, it's obviously weak.

Your gross margins sequentially were under pressure by like 30 basis points.

How much of Times Fiber contributed to that decline, is that where the weakness is in gross margins?

Certainly, obviously with the volume decline that we have experienced over last two years, you know, there is certainly a lower margin at this point in time.

But what the good news is, that this business can be flexed tremendously from high volume to lower volumes, still be profitable and still have a very strong cash flow.

So we are very pleased with Times Fiber and the longer term opportunities that we have, even though short-term there may be a margin pressure which we have been able to compensate to a great deal, as you have seen in the first quarter with the increased volume in the connector business and in the value-added business.

And I think this is going to be a trend that we will see continuing actually Times Fiber has pretty much stabilized.

At those low levels where it is now, we don't anticipate further declines in the second quarter over the first quarter.

So we don't see that this is going to be another factor at this point in time as it relates to margins.

But from a profit standpoint it doesn't sound like you're hopeful of seeing a price increase given the material costs increases that you're absorbing; is that fair to say?

Well, price increases have been launched, as you know, by many cable companies.

And the coaxial cable, aside from broadband communications is just the last one to go.

Usually the market leaders do have -- take the initiatives of increasing prices and, you know, that has happened in other areas of the -- of cable manufacturers.

It may happen in our area as well and then obviously we'll pursue that as well.

Okay.

And then just one last question: Ed, what is the head count at the end of the quarter and as it relates to the SARS epidemic, are you seeing any effect from that?

Head count is quite stable.

Obviously, we have added some head counts because of the acquisition that we had in the last week of March or the last two weeks of March.

So that has certainly added some of our heads, but we are very much controlling our census and controlling our expenses overall, as you know, from the past, and as it relates to SARS, we have seen obviously that epidemic spreading.

We have taken a host precautionary steps ourselves.

In many instances we have duplicate operations for what we are doing in China.

We are very optimistic and our first concern right now is for the employees and protect them and not expose them to, you know, travel and meetings and all of this, to a broader audience.

And we're taking a lot of precautionary measures in Amphenol.

Maybe we go to another --

Thank you very much.

Thank you very much, Steve.

Our next question is from Bob Cornell from Lehman Brothers.

Yeah, good afternoon everybody.

Good afternoon, Bob, how are you?

I'm all right.

Good.

Just a couple of questions.

You mentioned the book-to-bill, you also mentioned that March was strong.

How was March on a book-to-bill basis?

The book-to-bill in March was 1.02 to 1.

So the major increase in the backlog is really realized in two areas; that is in the industrial market and the military aerospace market.

In all the other markets, usually the order comes in when we ship the product.

Because of our, you know, electronic interface that we have with our customers, we look into their MRP systems.

They give us the window within which we can ship at which point in time these orders come, you know, these forecasts become orders and we ship them out within a short window.

So usually the book-to-bill ratio is only meaningful in the areas of the military aerospace industrial market.

It has grown more substantially than what we are showing here.

It's about, you know, closer to 1.1 to 1, as opposed to 1.02 for the whole company.

This is a question on the capital expenditures.

You mentioned capex was up but sort of hedged saying somewhere it was on acquisitions.

No, no, the capital expenditures were up on the run rate basis.

Last year we spent about 19 million, this year the first quarter we spent about 6 million.

So on a run-rate basis, we are up over last year, that's what I meant to say about.

Here's the question: What are those capital expenditures relative to what you had budgeted for this quarter?

Are you ahead or below budget?

We are right on target with our capital spending.

And the other part of that question is: Where's that money being spent, is it being spent in the 48 states or being spent outside the states?

It is spent around the globe.

We make tooling in Asia as much as we make tooling in Europe and North America.

So it is spent -- I don't have the breakdown, Bob, where it is spent more at this point in time.

But over the year, it's probably equally spread amongst the operations very much in line with the sales that we generate, 50% in North America, and half and half in Asia and Europe.

That's probably also the spread, even if in recent years we spent probably a little bit more in Asia, than we spent here in North America.

Can I ask one final question?

Yes, please.

What's the look on both pricing and cost issues?

I mean, have you seen increased pricing pressure as we bumped along the bottom?

And what about some of the gold has come up, you do (indiscernible), what's the price comment and the cost comment?

I think the patterns that we have seen all of -- in 2002 haven't changed in 2001 dramatically with one exception, and this is that for some of the plastic materials and oil-based materials, and that also includes, you know, refinery costs for aluminum, has certainly had a more significant impact on our coaxial cable business in terms of inflationary increase than on the connector business, also considering that, you know, in the connector business, you have about 30, 35% of your cost in material, while in the cable business it's more like 80%.

So it has a more significant impact there.

But we have been able, in the connector business, to offset it mostly with cost reductions all year in 2002, also in the first quarter of this year.

While in the coaxial cable business, traditionally that is offset by price increases and there's sometime as lag and that's what we're just experiencing here in the first quarter.

Okay, thanks, guys.

Thank you very much, Bob.

Our next question's from Matt Sherman from Thomas Weissal.

Good afternoon.

Good afternoon.

Martin, regarding the automotive business, if you could talk a little bit more about opportunities in terms of electronic content issue and design-win opportunities, and sort of compared with concerns overall about production slowing and overall demand there slowing?

As I mentioned all along in all of our conference calls, Amphenol is really a small player in the automotive area.

We are not a broad-line supplier.

We are focusing on certain electronic areas where we can bring some value.

We clearly can bring value or else we wouldn't have been able to be in this business for the past 16 years, which is interconnect products for safety devices.

We can truly bring value because the safety devices is clearly of concern to the automotive manufacturers and increasingly so and we can bring a lot of technologies that have been developed in other segments, especially in the aerospace industry to this market and thereby provide value.

What we have experienced also is that this business is not very much cycling with the production of automobiles itself because it has just this product is proliferating into smaller cars, it's proliferating into seat belt tensioners, it is proliferating into more devices within the car, if you look at an Audi today, it has about eight air bags or nine air bags, while a few years ago, we have just seen one air bag.

All multiplying our opportunity, and in addition, the telematic is certainly again the specialty technology in Amphenol with antennas and radio frequency technology that is really tailored to what we know and where the demand is today to upgrade cars with that type of communication in the electronics equipment.

Okay, great.

And then just to follow-up regarding sales through distribution, can you comment how was tracking through the quarter?

I know a lot is military-related but what do you think their inventories are looking like and order rates and sell-through look like?

Inventories are healthy at distribution for both industrial and military aerospace products.

We have seen a relatively stable business environment in distribution in the first quarter.

The growth really came from the new programs that mostly are handled on an OEM-direct basis.

Okay.

Thank you.

Thank you.

Our next question's from Patrick Parr from UBS Warburg.

Good afternoon.

Good afternoon.

You characterized, Martin, the economic environment as stop and go, January strong, February soft, March strong.

How would you characterize April so far?

April has a mixed start, you know, it's the same pattern as we have seen before in other months.

I wouldn't characterize it that that was a spillover or a strong start, but it is kind of a normal April that the whole seasonal trend in the second quarter is always somewhat up over the first quarter in general because the Chinese new year, usually Asia becomes somewhat stronger.

That we have certainly experienced to some extent.

And but overall, it's hard to say in two weeks, you know, or 10 days what a general trend is for the month.

Because, you know, sometimes you start slower and then end stronger in the month and it's hard to predict what April in total will be at the end of the day.

But the stop and go I have characterized because we have seen a similar pattern last year, September weak, October strong.

You think there's an underlying trend then the next month it goes back.

That's the reason why I say there's some uncertainty in the marketplace.

With the exception of the military aerospace market and automotive where we see just underlying strength for the products that we have.

Okay.

And then maybe Ed can answer this one: You gave us the revenue, March quarter revenue in constant dollars year-on-year.

Could you tell us what that would have been quarter-on-quarter from December?

Yeah, on a year-over-year basis, sales, excluding foreign current were up 4%.

On a quarter on quarter basis, Ed?

Over the fourth quarter on a constant-dollar basis, up 4%.

On a sequential basis on a nominal dollar basis, up 6%.

Okay.

That's good.

And then one -- a third question --

Excuse me, I'm sorry, I was looking at another -- they're up 4% on a nominal dollar basis and 2% on a constant dollar basis over the fourth quarter.

That's total company.

Total company.

The connector business was up stronger.

Sure, sure.

Okay.

And then you said Insilco contributed about a million in the quarter.

Refresh my memory, was the run rate on an annual basis about 25 million, I think?

That's about right, yes.

Okay, so within your guidance now, you're including that 25 million now or annualizing it?

We have not really adjusted it yet for that purpose.

When we said the 4 to 7%, I said it's going to be on the higher end because, you know, certainly that acquisition will contribute something to that and to be more higher than on the lower side.

I'm sorry, one final quick one: On the refinancing, give us a sense of how big the charge might be related to that.

And then I don't think there's an impact to interest expense, but could you confirm that for me, please?

Yes, the charge, there's a appropriate to redeposition in the sub debt and write-off of existing debt issuance cost, a total on a pretax basis will be approximately $10 million, and after tax basis, about $6 1/2 million.

Okay.

And what we see now in terms of where we are, the expectation is to achieve comparable levels of interest expense in the new agreement with significant benefit being the pushout of maturity levels.

Okay.

All right, great, thank you.

Thank you.

The next question is from Michael Morris from Salomon Smith Barney.

Yes, thanks, good afternoon everyone.

Good afternoon.

I guess I want to first on the mobile phone segment.

Martin you talked about success in gaining content, I think the objective evidence is overwhelming that that's happening.

In the past you've talked about number of units sold that you expect to have Amphenol content in.

Do you have an estimate for units in 2003 that might have Amphenol content?

Yeah, well, last year in the year 2002, we were in about 220 million -- 220 million phones.

We expect that to be up this year over last year, but probably at the rate of the market.

However, with a higher content.

Okay.

And then you mentioned your belief that you've really positioned yourself with the winners in that market and I would like to ask if the winners include the emerging companies in places such as China, if you are getting your Amphenol products into phones with, let's say, TCL and companies like that?

We have significant contact with all the six major Chinese manufacturers.

TCL being, you know, probably the largest one, bird another one, and many others, there are six major manufacturers.

We have presence and strong content with all of them.

Obviously, there are others in Asia that also do well.

Nokia continues to do well.

We are gaining share in some of the others.

When I say gaining share, I mean content on the next platforms that they have designed.

And that is good.

When I say we have aligned ourselves, we have a broad customer base.

We are doing business with all major manufacturers with the exception of some of the Japanese manufacturers.

And, you know, so we participate with those who grow at the times when they grow.

So it's not that when they don't grow, that we now don't have any business, we are fortunate to have a very broad base and we just see stronger growth from certain than from others.

And we are fortunate enough to participate with them.

The -- just I guess this may be a little bit sensitive, but have there been any variances in the organic trend in the cell phone market year to date from your expectations at the beginning of the year?

You're obviously doing very well, but Is the underlying market about what you expected it would be at this point in the year?

I think this is a sensitive question, but overall, we feel that it may not have been as strong as generally expected in the marketplace.

That I would think is the case.

But, you know, I don't have this ability at this point in time what the market really does, but just that's more of a feeling about it.

Okay.

I have a couple of more quick modeling-type questions.

The SG&A ticked up a little bit and was a little higher than we had modeled.

I wondered if that was related to the acquisition or if that's sort of the sustainable level for the remainder of the year?

I think the -- this is probably -- there are some inflationary pressures in addition to the material costs that Martin talked about, and the benefit costs, and pension costs, et cetera, so that the level that you see in the first quarter is probably a reasonable level to use going forward.

Okay.

And same question with the tax rate, Ed, is 34% the figure to use for the year?

Yeah, that's what I think we'll see for the balance of the year.

And my last question is on the interest expense, 8.1 million, it sounds like that button be a meaningful delta in the restructured capital structure so is that, again, a go-forward figure?

That and moderated by continuing debt reduction.

Right.

Okay.

Great, thanks very much.

Thank you.

And we'll proceed to the next question from Jeff Beach.

Congratulations on another good quarter.

Thank you.

My questions are about the two acquisitions you've closed on Insilco.

Can you outline some of the actions you're going to take to improve the profitability there and what the time frame might be before the margins approach your other -- your interconnect margins?

And then can you also talk about where we are with PCD and I don't know anything about the profitability there, but can you talk about it and when PCD might hit the same level?

Well, let me address the Insilco companies first.

Obviously, they are emerging out of bankruptcy and have not done very well.

Our acquisition strategy is to acquire companies that are accretive to Amphenol in the short-term.

So we are very confident in a very short period of time these companies will reach the level of performance that we are used to in Amphenol.

Or else we wouldn't have proceeded with the acquisition in the first place.

That -- there's no, you know, miracle to make this business relatively profitable.

As it relates to the PCD situation, Ed may want to give some comments.

That's also as proceeding in a bankruptcy situation and we would expect in early May to -- that's the schedule now for completing that and they have sales of roughly $14 million.

And this is a profitable division of a larger company that had a (indiscernible) but one that gave them the problems, so its margins are roughly comparable to what the overall company.

But as well we think we can add additional value to the larger structure in the industrial aerospace markets that we know so well.

Thank you.

Thank you.

The next question's from Sam Adondakis for Prudential Securities.

Hello, good afternoon.

Good afternoon.

A couple of questions.

First, did interest expense decline beyond your expectations in the quarter and, if so, what was the cause of it?

The big reduction from certainly a year ago, well, there are two things clearly, lower debt levels as well as last year for the first six and nine months we had some higher cost interest rate swaps that ran off in the third quarter.

So two of those combined account for the reduction and the interest expenses.

It's consistent with the fourth quarter and pretty much as we expected.

Okay, great.

And then as far as quarter over quarter connector pricing declines, what are you seeing overall and was there any change throughout the quarter?

And what do you see moving forward?

We haven't seen any change in the pricing patterns of the market.

The market, since it started to decline, became more competitive and more price pressure.

Obviously, it was put on all the companies but Q1 wasn't any different from any of the quarters of last year.

So I don't see a change and we're coping well with that pressure.

Would you say quarter over quarter the declines are somewhere between, say, 3 and 5%?

It depends on the segment, very much on the segment.

I don't think that it is good to say that it is a general price decline of that magnitude for the diversity that Amphenol has because the aerospace and also portion of the industrial and automotive segments have just other characteristics.

Okay.

And then one final question: As you look at the inventory restocking that you mentioned that's going to be necessary as a result of the war, how do you expect that to impact that segment?

And then also when do you expect the impact to be felt?

Well, I put that out because when inventories are being reduced as a result of operations, we always see replenishment later on.

Usually it goes over a longer period of time, usually it doesn't go with the same equipment, but upgraded equipment.

So we will see that as a gradual action as opposed to, you know, at one swoop, you know, somebody filling the stores again.

Because, obviously it is good to deplete some of older equipment and then replace it by upgraded equipment.

And that takes some time and is gradual.

Okay.

Fair enough, thanks.

But it will positively impact us over time.

Great.

Thank you.

Our next question, sir, is from Larry Harris from HC Wainwright.

Yes, thank you.

With respect to the coaxial cable business, did you see any shift in mix between semiflex and drop as a result of the increased shipments to Comcast?

I think in the total mix, we have seen relatively little change because, you know, we shipped semiflex previously to other MSOs and this time it was just, you know, a change to where it goes.

But the total mix didn't really change.

In any significant way.

Okay, great.

And you mentioned that the book-to-bill ratio company-wide was 1.02.

Was it somewhat below 1 or close to 1 for the coaxial cable business?

No, it was for the coaxial cable business, it was almost one to one.

Almost one to one, great.

And you mentioned that you were seeing some softness for the coaxial cable and international markets.

Were there any international markets that were particularly soft or was, you know, just generally across the board?

Well, as you know, in this business sometimes one country is stronger than another.

So in the total mix I have to say it was relatively the same what we have experienced in prior years with the exception that just the capital spending, especially in North America, but in -- and generally in especially Asia, South America, was just lower and, therefore, we had lower sales.

Understood.

All right, well thank you very much.

Yes, thank you.

Our next question's from Erol Rudman from Rudman Capital.

Hello.

Hello, how are you?

I am well and we appreciate your good job of managing our company.

Thank you.

I had some questions with respect to the coaxial business and the debt changes.

Yes, please.

In terms of coaxial, is -- are your indications from Comcast that it's likely to start refurbishing the AT&T property such that the sales may go back to historic levels in that division?

Well, we have seen a modest increase in their spending in their upgrade activity in Q1.

We have no indication at this point in time that that would significantly accelerate beyond that level.

Why would that be?

That is, why would they begin to improve it and begin to improve the order flow in one quarter and not have it extended?

Well, they continue.

I mean, we have no indication that it would stop.

We just -- what I am saying is that what we have seen is an uptick in that activity and we believe that this will continue at about those levels, maybe in some systems stronger than in others.

But in average, probably at that particular level.

I don't have any insight at this point in time whether they have plans to strongly accelerate it.

Certainly we have no indication that it would decelerate again below the levels that we have seen in Q1.

Is it likely that the margins will begin to improve in the Times Fiber division as things unfold?

I think much will depend on pricing in that area because the raw material prices certainly haven't come down yet.

Okay.

Now, I wanted to ask a couple of questions of Ed.

You mentioned the cost of interest rates swaps which ran off.

Could you indicate the size of the swaps and the cost in place on the new debt agreement?

Well, as indicated, we did have 450 million swaps, but those were off in the fourth quarter as well.

The current debt levels we anticipate, including swapping at least half of the new credit into longer term arrangement, that we'll keep that -- the interest costs comparable to where we are now with a fair amount of security as to the stability of those without being subject to an inordinate amount of fluctuation due to changes in variable rates.

And the way the negotiations are developing now, could you give us an indication both -- I guess it's not the cost of the swap is included in the price of the money; is that really what you're saying?

We would swap the debt itself contractually would be a variable and we would swap a good portion of that, as much as half of it into a fixed rate nature.

Okay.

And in terms of lengthening the maturity, could you give us a rough indication as to what the new maturity will look like?

Roughly what we're discussing, the portion of the facility would be for five years and the largest portion would be a seven-year essentially with a board amortization or amortization in the first two, three years would be fairly modest under 20 million a year.

So it would give us a lot of flexibility but clearly what we have done in the past and what our intention would be in the future is we generate a lot of cash and any excess cash flow would be used for continuing deleveraging of the company.

As we have done in the past.

Yes.

And in terms of borrowing power, does the extension of maturities increase your borrowing power should you find acquisition targets that are above your internal cash flow generation?

We have always had, even the current agreement and the new agreement will give us some flexibility were there to be the case of larger acquisitions that would require greater facilities.

We have carve-outs for that.

I think we're running out of our time block.

Maybe we have two more questions with one question each, please.

And our next question's from Neil Rosenswag at Bear Stearns.

Hi, yeah, actually my question has been asked so there's an easy one for you.

Thank you very much.

Thank you.

Appreciate you being on the call.

Our next question's from Steven Barry from Goldman Sachs.

My question's also been answered, thanks so much.

Good afternoon.

Our next question's from Wayne Cooperman from Cobolt Capital.

A question on the interest expense.

Do you have a number, how far is going to be fixed first floating and what your average rate would be on a go-forward basis?

The agreement, we're still negotiating so I'd rather not --

Any kind of ballpark?

Well, you know what the current three-year swap rates are around 2 1/2%.

Is that right?

That's pretty good.

Pretty good.

That wouldn't be our borrowing cost, there would be a spread on top of that.

It looks like your average rate though was around close to 5% in the first quarter.

And that's -- that may be a little higher, it would not be -- not a bad way to look at it.

Right, okay.

So there's a lot of decline in interest expense year-over-year for this year.

Rates as well as reduction in the debt outstanding as well.

Right, right.

All right, great, thanks a lot.

Well, thank you very much all for your interest in Amphenol and we are certainly happy to have been able to report a good quarter and we'll continue to look forward to the challenges moving ahead, which we have mastered in the past and will be able to do so in the future.

Thank you very much for your interest.

Good-bye.

This concludes today's conference call, all participates may disconnect.