安費諾 (APH) 2003 Q3 法說會逐字稿

Good morning or afternoon everyone and thank you for joining today.

At this time we would like to inform you that you are on a listen only until the question-and-answer session of our conference call.

This call will be recorded.

I would like to introduce you to your host today Mr. Edward Jepsen.

You may begin sir.

Good morning.

My name is Ed Jepsen, the CFO of Amphenol and I am together with Martin Loeffler, the CEO.

I would like to welcome everyone especially our new shareholders as a result of the August 7 secondary offering.

The Company's third-quarter results were released yesterday, I will provide some financial commentary on the quarter and Martin will give an overview of the business and current trends and then we will have a Q&A.

The third quarter was an excellent quarter in the continuing challenging business environment.

Sales for the quarter were 315 million, that is up 17 percent from the $268 million in the third quarter in 2002.

The sales increase includes a positive currency effect of 11.7 million.

Breaking down sales into our two major components, the connector interconnect business which comprised 87 percent of our sales in the quarter, was up 18 percent compared to a year ago with increases in all major end markets and all major geographic regions.

Coaxial cable business for broadband networks, which comprised 13 percent of our sales, was up 12 percent from last year primarily through the result of an increase in international markets.

Insilco in PCD industrial avionics businesses that were acquired in the first and second quarters this year, contributed approximately 13 million in incremental sales.

Both operations were profitable and accretive.

Operating income or EBIT for the quarter was strong and 52.4 million compared to 44.2 million last year.

The operating margin was 16.6 percent an increase from 16.2 percent in the second quarter of this year, and a 16.5 percent in last year's third-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 hire margin applications specific products, excellent operating leverage on an incremental volume for an interconnect business, and aggressive programs of cost control.

Interest expense of the quarter with 7.2 million compared to 11.5 million last year, reflecting lower rates and lower debt levels.

Other expense was 2.4 million compared to 1.2 million last year.

Other expense this quarter includes a one time charge of $750,000 or one cent a share for the cost of the secondary offering in the third-quarter.

Tax expense was an effective rate of approximately 34 percent, the same rate as used entire quarters at this year and down slightly from the 34.5 percent effective rate used last year.

Diluted earnings per share for the quarter was 64 cents per share, except 33 cents, 33 percent from the 48 cents a year ago.

EPS, excluding the onetime cost of the secondary was 65 cents this quarter.

During the quarter we regenerated a very strong cash flow from operations of 35 million.

The 35 million cash flow from operations is net of a 10 million voluntary contribution to our pension plan.

In other words, cash flow from operations would have been even higher without such contribution.

On the cash flow from operations, 8.9 million was used for capital expenditures, 4.7 million was used to buy down the minority interest in one of our subsidiaries, and the balance was used for debt reduction.

In addition, while the Company did not sell shares in the recent secondary offering, it did realize 27 million in proceeds from the exercise of stock options and the related tax benefit.

Accordingly the Company has paid down a total of 73 million in debt since the beginning of the year, much of that coming in the third-quarter.

The balance sheet is an excellent shape.

Accounts receivable and inventory is essentially unchanged from June 30 in spite of the higher volumes.

Total debt outstanding at September 30, was 570 million, and as indicated that's down 73 million from the beginning of the year.

Finally, orders for the quarter reflected a book-to-bill ratio of approximately 1 to 1.

I would also like to comment that occasionally I get a question or there is a comment, the implication being that the Company has a high debt burden by reference to the book debt equity ratio.

First I don't believe that ratio is a very good ratio for measuring debt capacity or financial leverage.

The usual measures of debt capacity or the leverage ratio, which is that divided by EBITDA for which our ratio is now 2.6 times, and interest coverage ratio which is EBITDA divided by interest expense for which our is 8 times.

These are very comfortable ratios and in fact a major rating agency has us as one rating away from an investment grade.

Second, to the extent that the book debt ratio is used, our book equity ratio, our book equity was reduced by 700 million in 1997 as a result of the accounting for the recapitalization transaction.

Another reason that this ratio is not very meaningful.

Since becoming a public company in 1991, the Company's level of top line growth has exceeded that of any other company in the industry.

Clearly our debt levels have not growth.

Furthermore, our level and EPS growth has far in away exceeded that of any other company in the industry.

And our financial leverage has significantly contributed to that high level of performance.

With that, I will now turn it to Martin for his comments.

Thank you very much, Ed.

Thank you all for joining our traditional conference call.

It is this time one day late, I hope we haven't created inconvenience for you.

This is exceptional.

Welcome also to all the new shareholders that have joined after the secondary offering during the quarter.

As Ed said, I'm going to review very briefly third quarter highlights as well as some highlights for the nine months year-to-date.

Discuss some trends in our progress in the cert (ph) markets and comment on the current outlook for the fourth quarter and the full-year 2003.

As to highlights, we're extremely pleased with the excellent results of the third-quarter considering that the third-quarter is usually a seasonally slower quarter in the year.

We have been able to exceed analyst consensus both in terms of revenues as well as in profitability.

Sales in the quarter increased by 17 percent helped somewhat by currency.

In local currency, we were up a solid 13 percent over prior year.

We are very encouraged that this stronger growth was broad-based with excellent sales increases in all cert markets and geographies.

I'm going to comment on each of these segments just in a minute.

We are also pleased that sales increased sequentially over the second quarter by three percent, currency did not have an impact on that increase nor any acquisition, so it was a real internal growth of three percent quarter over quarter.

As expected, the strong Asian sales more than offset the slower period in Europe that we anticipated.

Very strong performance in Asia as you will see.

I'm very pleased that both the interconnect part, which represented about 87 percent of our sales and the coaxial cable business contributed to that top line growth in the quarter.

Were also very pleased that our industry leading operating margins expanded further to 16.6 percent, despite the continued price pressure, in most of our cert markets.

Our improving margins are a direct result of a good conversion margins of the incremental sales to profit.

It's a direct result of our continued effort to introduce more interconnect solutions which bear higher margins.

Were also pleased that the two acquisitions, PCD and Insilco from the second quarter are operating now at the Company's average margin level.

We are focusing on an ongoing business basis on our cost containment programs.

Our SG&A remains a very strong, 14.2 percent in cost effective, in a cost effective manner.

These positive trends have more than offset the continued pressure of margins that we see on the coaxial cable business as a result of the higher material costs and some change in the product mix.

EPS increased as I mentioned already, a strong 33 percent over the third-quarter of the prior year.

And for the seventh quarter in a row.

This is a very consistent EPS performance throughout the year, as a year-to-date growth in EPS is also 33 percent.

We're very pleased with this strong performance of the Company.

The strong EPS growth is a direct result of our operating performance as well as our financial leverage that Ed alluded to earlier.

We have been able to reduce debt and refinanced debt in the second quarter at the lower rates and we have free cash flow, we have continuously reduced debt which has certainly contributed to our EPS growth throughout the year.

Amphenol continues to be a very strong generator of cash, but again free cash flow generation of about $26 million in the quarter and we continue to apply this free cash flow primarily in three areas that have in the past contributed to value creation as well as we continue to create value in the future.

First, we applied this cash for investments into new products and new interconnect solutions which provide value to our customers and thereby generating higher margins than more standard products.

We continue to make investments in acquisitions that are immediately accretive.

And third, we will continue to reduce debt in order to apply the remaining opportunity of our free cash flow.

Let me now talk very briefly about the trends and the progress in our cert markets.

The broadband communication market for cable television networks first comprises about 14 percent of our total sales in the quarter, and broadband communication in the quarter was up 14 percent compared to last year and sequentially 15 percent.

This was the strongest quarter of broadband so far this year.

We are very pleased with this improvement, however, it is clear that that was related to a seasonally stronger quarter and a comparison to a relatively soft quarter in 2002.

Operating margins remain under pressure as I mentioned earlier, as the higher material prices and material costs have not been passed down to the customers at this point in time.

Which means that the operating margins in that broadband segment remain somewhat lower than the average of the Corporation.

We expect to have this current demand level continue in the future except some seasonalities that we always experience in that business.

This trend will continue until capital spending of operators worldwide will resume.

It's a good business trend and we will continue to be a contributor as we move forward.

Our second major market segment, the wireless telecom and datacom market represented 36 percent of our total business and is comprised of three segments.

Mobile phones, the mobile phone market, mobile infrastructure market, as well as the computer storage and Datacom equipment market.

Let me start out very briefly with comments on the mobile phone market itself.

We've been very pleased that our expected rebound in the mobile phone business did really materialized.

You will recall that due to some inventory buildup in Asia, the second quarter was relatively slow compared to previous quarters, but we expected that rebound to happen and it happened strongly.

In local currencies, third-quarter sales were up 26 percent over the prior year and sequentially up 25 percent.

We are particularly pleased that much of that demand came from new phone models that were introduced in the quarter, and we're particularly excited about the fact that these new models include our higher product content of Amphenol which has contributed to drive the growth of our sales up higher than industry demand for mobile phones in total.

We expect the fourth quarter to remain strong in mobile phones.

This is usually a seasonally stronger quarter so that for the total year we expect in the mobile phone area to grow in excess of 15 percent, much faster than industry growth in that area, in local currencies.

And expect our contribution from the new products in those markets to contribute strongly.

As it looks at this point in time, we will share about 55 percent of the mobile phone production in the world with our products.

The second segment in wireless Telecom, Datacom is the mobile network infrastructure market.

We had another strong year-over-year growth in that segment following a second quarter that was already very strong.

We were 8 percent up in the quarter compared to last year and sequentially up 4 percent over the strong Q2.

We are very pleased with this because we continue to gain position across the broad customer base that we serve.

For the full year, we are up 9 percent clearly outperforming the market growth and we expect that positive trend to continue especially as demand will grow in the near future, we see more and more activity and UMTs, and just a more firm demand in this areas.

So we are very positive about that segment moving forward.

The third segment in that subsegment is the computer storage system and Datacom equipment market, which comprises about, which was up 10 percent over last year.

We are very pleased with the solid growth and the progress in this segment.

This is probably the most challenging segment because it remains somewhat sporadic and certainly there is quite some price pressure in that market going on.

Nevertheless, we are very encouraged by the growth of our new interconnect solution for the serial system architectures which are progressively being introduced by our customers switching away from the parallel architectures.

Our solutions are well-endorsed with a broad customer base and we expect good growth as our customers switch to the Next Generation, the Next Generation products.

We are also excited about our new RJ product line which is a very sophisticated advanced product technology supporting the gigabit data updated communications.

That product line has a very strong potential as our customers now switch over to the GB data communication rates and we are very pleased to see these approved by our customers and endorsed for the future product.

We are well positioned in that market segment as our customers switch to the Next Generation product and has momentum grows in the computer and storage Datacom market.

Let me continue to talk about aerospace and defense.

We had a very solid quarter again, 10 percent growth in the quarter, military aerospace represents 24 percent of our total in the quarter, we are very pleased with this performance.

The growth continues to be driven primarily by the new programs.

We are also pleased that some of these small commuter aircraft built is contributing to growth, while the large commercial aircraft segment remained soft.

Obviously, we are well-positioned in that segment and when it returns, we will continue to contribute to growth.

This segment, military aerospace, has been strong for some time and we expect it to continue to be strong due to our unmatched technology, unmatched presence, and unmatched diversity in programs.

Last segment of Amphenol that we serve is industrial and automotive segment, which represents 26 percent of our total sales.

The industrial segment was again up a strong 14 percent, driven primarily by some firming (ph) demand as well as our continued focus on the (indiscernible) account penetration with more advanced products that smaller companies cannot bring to those companies.

We are very pleased also to see that our new product introductions, especially for the medical and industrial factory automation market taking off as it clearly is a technology that smaller companies cannot follow.

The automotive segment had also a very solid growth, 17 percent, very strong considering the slowness that we have experienced and Europe throughout the quarter in the automotive segment, but we compensated by strong growth here in North America.

The growth is driven and continues to be driven by our strongholds in the telematic area with GPS systems as well as satellite communications systems that are being increasingly put into automobiles on a broader basis.

As well as her interconnect solution for safety devices.

Both industrial as well as the automotive segment will continue to remain strongholds of Amphenol as we move forward.

From a geographic standpoint, if we compare the third-quarter this year to last year, we had in local currency strong sales increases in all regions.

North America was up 13 percent, Europe was up 7 percent and Asia a strong 23 percent, so very pleased with that increase year-over-year in those regions.

In summary, obviously we are very pleased with the results, we benefited from some firming demand in many of our end markets.

We certainly benefited from the higher volumes that we generated and the operating leverage in the company to generate higher margins.

We continue to take advantage of our global presence as well as our advanced technology to build position especially against the smaller competitors.

We are encouraged about a strong stream and large range of new products that were introduced and as all these market segments will continue to strengthen, Amphenol is well positioned to take advantage of this in the future.

We will continue to take advantage of our diversity in our geography as well as in the end user markets that we serve.

One comment to the outlook for the rest of the year.

Based on the good results of the third quarter, and based on the confidence that we have in our ability to continue to introduce our new products and gain position with our customers, we have again upwards revised our outlook for the full-year 2003.

Previously we gave an estimate of an increase of 9 to 12 percent, that was in the June quarter, we now revise upwards that our revenues will grow for the year somewhere between 13 and 15 percent.

Obviously currency had some affect in this growth for this year.

We also increased our outlook further and revised upwards again our EPS forecast.

We previously assumed and guided for a 25 to 30 percent increase for the year, and we are now saying that our increase will be more in the range of 31 to 33 percent up from a year ago.

This puts us into the range between the $2.42 to $2.46 for the year.

Very strong 33, over 30 percent EPS increase for the year.

So we are very excited about the many opportunities that we have in front us.

We certainly look forward to conclude a strong year 2003 and move with a lot of confidence and with a solid foundation of new products and customer presence into the year 2004.

Thank you very much and with this I would like to ask for the first question.

At this time if you'd like to ask a question, please (OPERATOR INSTRUCTIONS) Stephen Fox.

Merrill Lynch.

Martin, could you talk a little bit about the acquisitions and how you got the margins up so quickly to corporate average?

Good morning Steve, thank you.

Both of these companies were in bankruptcy but they were not necessarily the main culprit for the bankruptcy themselves so they had certainly some inherent margins.

Key to it was to go back to customers and say that these two companies are back in business, that we support them, that some areas didn't have the right pricing so we asked for some pricing concessions that the customers, and we structured the company in such a manner that it was a streamlined like our other operations throughout the quarter, and that helped us to get them within, about that four month period back up to the corporate average.

Thank you very much.

Michael Morris Smith Barney Citigroup.

Good morning.

Martin, I was wondering if you -- I have a question about Asia.

I guess when we look at the passive device segment, we see the emergence of some pretty aggressive Asian competitors for certain commodity capacitors and certain other devices but we really haven't seen the analog to that in the connector segment.

We know that you have all of your competencies in China and a strong presence there, but could you talk a little bit about the competition, will we see the emergence of those kind of competitors in connectors and if not, why not?

This is a very important question in that a question we wrestle with every day.

Obviously we had a very large competitor who is at the same time a customer, that is Foxcom.

That is certainly a company that we watched very, very closely.

They are located in obviously in China with essentially all of their manufacturing, but we have the same cost level so we can compete effectively.

We compete essentially engineering and technology.

The second I want to point out that many, many Asian customers.

These Asian companies that are current competitors and potential competitors in the future.

The reason why they are being discovered is a result of business transfers of many of the multinational companies to Asia who have themselves explored some of the Asian suppliers and so forth and found companies whose names we haven't heard before.

The good news for Amphenol is that may of these companies may have low cost but may not have the engineering presidents that you need in high cost like North America and Europe.

The good news is also that many of these customers do not have the technology that is required to participate in the GB area to participate in the high-speed data com area because most of these companies are concentrating anyhow on the computer and storage system market much more than on the telecom market.

So we can compete, effectively compete because of our engineering, because of our worldwide presence against those competitors.

But we watch them very carefully, Mike.

Thank you very much.

Matt Sheerin.

: Thomas Weisel Partners.

Just one quick question regarding your acquisition strategy.

It looks like the ones that you have done have been successful.

Just give us an idea of what you are looking at.

Is it still to fill some technical voids, geographic presence, take advantage of some competitors that may be having a hard time.

Just give us your thoughts there and what you are looking at?

Thank you very much question.

As I alluded to earlier in the discussion here, we continue to gain shares essentially against the smaller companies.

Some of the smaller companies have technology and have a geographic presence that is interesting to Amphenol and we will continue to focus our efforts on these acquisitions to fill these areas where we can add on to our competency and our presence.

And that strategy has been very successful for us and will continue to be successful as we are pursuing it, we have several acquisitions in a pipeline, or let me say several acquisition opportunities in the pipeline and we are always very carefully look at them from a contribution standpoint as well as from the management standpoint.

We do not want to acquire a company that doesn't bring management that fits well into the Amphenol culture of high-performance.

Thank you.

Patrick Parr.

UBS.

Good morning guys.

Just wondered if you could give us any commentary on pricing either from an end market perspective or from a regional perspective?

One of your large competitor's mentioned some pricing issues in Asia, and I'm just kind of curious what your thoughts are on that?

Pricing continues to be a challenge.

We mentioned in the broadband market for coaxial cable pricing is relatively stable.

Unfortunately because of the higher material prices, these are being passed onto our customers so we are talking here about price increases.

In the military aerospace market we obviously can make selective price increases, much of it is application specific.

And as such has it's own pricing.

But we have increased, actually we have announced a new price increase in the military aerospace segments through distribution for the first of January.

The other segments in the communications area, computer area, pricing remains certainly under pressure because there is a sporadic demand and it's still a buyer's market.

As such, there is some pressure on standard products, but as I mentioned earlier as we switch in many of these segments to next generation products we are again well-positioned ahead of the curve to enjoy the higher margins in the initial phase and that is continuing to drive our margins positively in the future.

As it relates to a geographic standpoint on pricing, certainly Asia is the fastest-growing area therefore with all the Asian manufacturers you would see more price competition in that area than in others and I would like to confirm that.

Can you quantify at all in terms of the industry average typically as a five or seven percent decline annually, is it in that range from your perspective or is it--?

In certain segments, this year's were probably somewhat higher, especially in the computer and storage system areas through the Internet (indiscernible) in some areas.

And I am referring not across the board but of the (indiscernible) products, they may be the 3 to 5 percent a quarter rather than for the year.

Thanks.

Michael Walker.

It's CSFB.

Just one question on the mobile infrastructure side.

It sounds like share gains are a big part of your growth story.

I couldn't tell whether on mobile infrastructure your growth of 4 percent sequentially, 8 percent year-over-year was strictly share gain, or do you feel like there is some signs of a basic demand pickup in mobile infrastructure?

I think it is probably a combination.

There is some firming of demand.

It still remains somewhat sporadic.

Prices are lower certainly this year than they have been last year.

So if you compare year-over-year, obviously even if unit volume is up, the revenues are not necessarily following it the same way.

So there is somewhat a firming of demand.

We see more activity in UMTS, 3G, than we have seen before.

And obviously, the upgrades of existing network for capacity reasons, as well as for increasing services for the subscribers, is certainly driving some of that growth of the upgrades of existing networks, especially the GSM networks around the world where there is upgrade activity on GPRS going on.

At the same time, we certainly have gained position across the board as well.

Would you say that a lot of that strength is taking place in Europe, or is it pretty broad based geography?

Actually, you have the major players here in North America with Nortel and Lucent, and obviously they are both strong also in Asia, Nortel also in Europe.

So you see that broader base, and then you have the Nokia and Ericsson and Siemens in Europe, and they are active also in Asia.

So it's more the strength of the multinational, depending where their strength is at that point in time.

Thanks.

Mark Hessenberg (ph), please state your company.

Nottingham Capital (ph).

Ed, in the past at various analyst meetings, you used to have a great chart that showed the operating and financial leverage that the company has, and you are now projecting earnings for the year that are I guess growing about twice the rate of revenues.

Could you review that again and sort of update it from what we saw possibly about a year ago?

Sure, Mark.

While the three drivers increase volumes, obviously you get incremental margin.

Generally, we look at, especially on the interconnect side of the business, of getting conversion margins, and I think we get excellent conversion margins on additional volume.

So far this year we're running in the range of 25 to 30 percent, and that's net of the effects of all the price changes.

So additional volumes certainly benefit, as well as increased volumes itself bring margins, obviously, because of additional profitability from the increased sales.

The financial deleveraging as a reduction in interest expense, you see the interest expense this quarter went down to a little over 7 million compared to 11.5 million last year.

So all three of those have allowed us to grow the top lines growing over an extended period at say industry-leading rates, and the growth and earnings per share over an extended period.

Both through several economic cycles have grown at a rate significantly in excess of the top lines as a result of these three contributors.

Do you think a 20 percent operating margin is still a realistic goal?

I think it's a very realistic goal and it will depend, of course, on the increasing volumes.

But certainly that's our task, and we have several operations now that are in excess of that, and we work to drive all of them to that higher level and even beyond that, Mark.

Thank you very much.

Jeffrey Beach, please state your company, sir.

Stifel Nicolaus.

Martin, I have a question about the broadband communications.

Are you seeing from your customers any signs of an upturn and associated with that if you had to take a guess as you are putting your budgeting together, would you give us a range or an idea what you think sales might increase in 2004 over this year?

Right now we are in the budgeting process for year.

We haven't quite finalized that, we go through this very diligently so we have continued credibility with all of you.

The thing is on the broadband side as I mentioned earlier, we assume that the current average levels will most likely continue for the next few quarters.

Seeing any real step ups in build outs which would change our product mix to semiflex rather than a drop cable, which is an indication that we are more in the maintenance level rather than in a strong buildout level.

The third-quarter result is more related to a seasonally stronger period of build which always can happen, I mean 2 or $3 million more in a quarter is easy, you know, you just have to have one system either be down or have to be upgraded and you can have that kind of spike.

Nevertheless, I think for the next quarters the demand will remain at the current levels based on the capital spending outlooks that we have.

Our customers are now in the process of budgeting actually they do this as usual in the fourth quarter, we will probably know more about this towards the end of November, beginning of December.

Thank you.

Keith Dunne, please state your company, sir.

Keith Dunne, RBC.

A couple of follow-up questions.

One kind of related to maybe the last question.

I wanted to ask you without giving us the sales number, can be give us any sense of this year sales growth was split 35 percent from core operations, 25 percent from the acquired companies, which is obviously is part of your strategy, and 40 percent from foreign exchange.

Do you have any sense how that split might look next year and obviously assuming that foreign exchange doesn't change from current levels?

As you just stated, we are not forecasting any currencies, so we would assume the remains stable at that current level.

Whether that's realistic or not, but that's how we plan.

If it was at current levels, what would add in sales next year if it didn't change from this level right now?

We wouldn't have any really strong additives from currency at the current levels.

Next year with assumed improving economic environment obviously there is going to be a more preponderant situation towards some internal growth, I mentioned the many new products which we are well-positioned with the expanded customer base that we have and if that all takes off obviously internal growth is going to be the major factor for our growth.

We continue to look at acquisitions but we haven't forecasted acquisitions in the past and will continue not to forecast it that way in the future.

So I think our growth this year in local currencies for the year so far it is about 7 percent.

So you know that is certainly a benchmark for 2004, a low benchmark for 2004.

A follow-up question or two, you talked a little bit about operating margins in broadband.

Did they actually change much from the roughly 11 percent that you did less quarter?

It's about the same.

My last question.

Can you break up percent of sales?

You mentioned 36 percent was the phones infrastructure and the Internet computer storage related areas.

Can you break up how those split out individually, those three markets?

Certainly, I can do this for you.

The mobile phone market is 9 percent, mobile infrastructure is 9 percent, and the remainder is 18 percent, which is the computer storage and Datacom market.

Thanks Martin.

Larry Harris.

Please state your company, sir.

Oppenheimer.

Another question with respecter the broadband.

You mentioned that sales were up due to international, are you saying any strength in specific international markets that generated that comment?

Thank you for that question, I would like to clarify that.

Obviously we have seen some opportunity in the international market.

I would like to reiterate that it was a seasonally stronger quarter, but as it relates to the international market we are very pleased that through our startup of our factory in Brazil, and we are more competitive against local sourced product and thereby, have seen some improvement in that region of the world which certainly has contributed to the third quarter results very positively.

Thank you.

Errol (ph) Redmond, please state your company, sir.

Redmond Capital.

This is Shawnlee Sibel (ph).

What I wanted to know is what are your financial average goals and would you be willing to raise your leverage for any particular acquisitions or any other reasons?

We really don't have any particular goals, we have been in a leveraged environment since 1987.

We feel very comfortable with different levels of leverage.

Right now we are just at about one grade away from investment grade level which is a very comfortable for us.

If acquisitions came along that were accretive and required some change in our debt structure, we would like to look at it at the time it occurs but there are no current plans.

Thank you.

Scott Craig.

Please state your company.

Actually this is Bernie Mahon (ph) with Morgan Stanley.

A question again on the margins.

The goal is 20 percent operating margins, but could you break that out on little bit between what the goal is on the interconnect side versus the cable side?

Obviously the goal is across the company, our broadband and coaxial cable products have been in excess of 20 percent, it can be there if the material price cost increases are passed on to our customers.

That has been the tradition, it hasn't been in this cycle for whatever the reason is.

If that happened quickly, the margins there come too and above the corporate average.

So the goal is not different here.

Obviously, the margins in the other segments are very comparable, and we are driving margins in all segments to get to the 20 percent.

We have 40 operating units, many of them are above the 20 percent.

So we really feel that we can trend towards that continued goal that we have of the 20 percent.

Just a couple of maintenance questions.

What was the sequential growth in the industrial and automotive segment?

In automotive, let me just check that for you.

Automotive was up sequentially by 2 percent in the quarter.

As I mentioned the seasonally slower period in Europe, but it was sequentially up 2 percent, and industrial segment was up sequentially 2 percent as well, and that is in local currency.

Thanks.

Phil Marriott (ph), please state your company, sir.

Arnhold & Bleichroeder, good morning.

Very nice quarter.

Two questions, one about share count.

I was just wondering, given your comments on the cash proceeds from option exercise on the secondary, could you give me an actual share count at the end of the quarter?

Did you repurchase any shares related to those options, or are they just now outstanding shares?

Just outstanding shares.

But the outstanding shares, the average for the quarter was 43.4 million.

The shares go into the diluted calculation even before exercise.

So the fact that they were exercised and are now outstanding really doesn't have that much impact on the average shares that are being used.

So I shouldn't be too concerned about the diluted count going up a little bit in the quarter?

I'm sorry, I said 43.4.

It's 44.2 million for the third quarter, was average share count.

More on the business, as you pointed out, your contribution margin this quarter was really very strong.

I was wondering if you could give a little more detail in terms of the impact on the contribution margin from volume versus mix?

You mentioned both, but I was hoping to just get a little more feel or flavor for the impact of one versus the other on your contribution margin, please.

I think both elements go into the equation.

I can't give you a very mathematical breakdown between the two.

What we know, however, is that the margins in our new interconnect solutions are usually higher than the average, and that is a positive contribution.

They represented these new products about 20 percent, a little bit over 20 percent of our sales in the quarter of total sales.

So we are back up to the higher levels and, therefore, we are confident with improving the margins because of that reason.

And volume, it depends really on the backward integration of where the growth takes place.

In some areas, we are more backward integrated than in others and, therefore, you get somewhat different contribution margins.

But certainly, they are in excess -- obviously, in excess of our average margins.

Thanks very much.

(OPERATOR INSTRUCTIONS) Keith (indiscernible), please state your company.

(indiscernible) Just a couple quick ones.

The depreciation and amortization takedown to 9.1, is that a decent go-forward, or are we back to the 9.5 a share?

Can you help us there?

It's hard to be too much more precise.

I think it's going to be somewhere in the 9 to 9.5 range.

As far as CAPEX for the year, what are you looking at there?

I think it will probably be in the range of 28 million or so for the year.

Lastly, the interest expense as we move down was, you know, what's occurred.

I was looking at just slight sequential, meaning a couple hundred thousand dollars a quarter downticks because of the cash flow, or can you give us any kind of color there?

The positive news is rates are lower.

The negative news is that you don't get the same impact with debt paydown because of the lower rate.

So the average rate on the debt paydown is between 4 and 5 percent.

I would expect interest expense will tick down 300 to $400,000 in the next quarter.

Lastly, again foreign exchange, does it change at all for the fourth quarter from the year ago?

Should we looking at that same kind of 11 million, $12 million contribution?

If foreign exchange rates don't change from the current rates, there won't be any contribution.

But looking over last year, fourth quarter over last year.

Fourth quarter, I haven't done that calculation.

It would probably be something in that range, maybe less.

I forget exactly when the dollar started weakening.

My last comment, as you mentioned higher phone content helped the phones.

Can you give us kind of a feel for what you believe your average dollar content is for the phones and what kind of rough percentage that changed at 1 or 2 percent?

We actually haven't made the calculation for the third quarter, but it certainly has that stopped somewhat from where it was before, and I think what we're pleased to see that more than one or two components are now designed in and used in many of the new models, opposed to having just one component included in some of the other models.

Clearly there is an edging up, but we will make the calculation for the next call.

Great, good job.

Keep up the good work.

We will take one more question at this point in time.

Jeff Beach.

Two quick financials.

One, would you repeat the third quarter CAPEX?

It was 8.9 million.

Second, the $10 million pension contribution that you made in the quarter, would you anticipate more pension contributions like this looking out into 2004?

It was a voluntary contribution, Jeff.

And what we're told now, there will not be a required cash contribution in 2004, but we may very well see -- we do have obligations in our pension, so it could well be something of this magnitude.

It actually is, given the level of performance of the stock market, it is not a bad investment for us.

Thanks.

Thank you very much for your interest in Amphenol.

Again, thank you for joining this conference call.

Have a good day, and good-bye.