安費諾 (APH) 2005 Q4 法說會逐字稿

Hello and welcome to today's full year and fourth this quarter earnings conference call. [OPERATOR INSTRUCTIONS] I would like to now turn the meeting over to today's host, Ms. Diana Reardon.

Ma'am, you may begin.

Thank you.

Good afternoon.

My name's Diana Reardon, and I'm Amphenol's CFO.

I'm here together with Martin Loeffler, the CEO, and we'd like to welcome everyone to our fourth quarter call.

Fourth quarter results were released this morning.

I will provide some financial commentary on the quarter, and Martin will give an overview of the business and current trends.

We'll then have a question and answer session.

The company closed 2005 with a record fourth quarter.

Sales and EPS were both at the high end of the company's guidance.

Sales for the quarter were 508 million, up 26% in U.S. dollars and and 28% in local currencies over the fourth quarter of 2004.

And from a sequential standpoint, up 14% in U.S. dollars and 15% in local - -

Since December 31st, the company has completed a number of acquisitions, including the acquisition of Connections Systems Division, or TCS, which closed on December 1st.

The acquisitions compliment and broaden the company's presence in a number of its target markets.

Excluding the impact of acquisitions, sales increased approximately 10% from last year's fourth quarter and 6% sequentially from Q3, 2005.

Sales of TCS in the quarter, which relate to the month of December only, were approximately 35 million.

On a pro forma basis, for the full year and the fourth quarter of 2005, including the 11 months that preceded Amphenol's acquisition of TCS, TCS had sales of approximately 373 million and 83 million respectively.

Breaking down sales into our two major components, the interconnect business, which comprised 89% of sales in the quarter, was up 27% compared to a year ago with increases in all major end-markets and geographic regions.

Our cable business, which comprised 11% of our sales, was up 14% from last year as a result of increases in broadband cable television markets.

Operating income for the quarter was strong at 94 million. compared to 76 million last year.

Operating margin was 18.5% compared to 18.8% last year and 19.3% in the third quarter of 2005.

Excluding the impact of the TCS acquisition which, in December, had ROS levels of approximately 7.5%, the Q4, 2005 operating margin was approximately 19.3%, up 0.5% from Q4 2004 and the same as Q3 2005, an excellent accomplishment in a challenging cost environment.

Margin improvement over last year, excluding the impact of TCS, was driven by expanding margins in the interconnect segment offset to some extent by a decline in cable margins.

In the cable segment, margins declined approximately 220 basis points from last year to 10.6%.

As price increases implemented in 2004 and late '05 were more than offset by a continued increase in material costs.

From a sequential standpoint, cable margins declined approximately 110 basis points from Q3 primarily due to higher material costs.

As a result of the significant increases in costs, the company announced a price increase for coaxial cable products for broadband that was effective in late December.

This price increase is expected to offset a portion of the impact of rising commodity costs and to help stabilize margins in this segment.

In the interconnect segment, margins were 20.7% compared to 21% in Q4 of 2004 and 21.8% in Q3 of 2005.

Excluding the impact of the TCS acquisition, interconnect margins were stable with Q3 2005 levels.

The increase in interconnect margins over the prior year relates primarily to the continuing development of new higher margin application specific products, excellent operating leverage on incremental volume and aggressive programs of cost control.

As stated before, TCS had operating margins of approximately 7.5% in December.

On a pro forma basis for the full year and fourth quarter of 2005, TCS operating margins before restructuring charges were approximately 7.9% and 5.2% respectively.

Interest expense for the quarter was 7.4 million compared to 5.5 million last year, reflecting higher interest rates and the impact of increased borrowings of approximately 396 million to fund the TCS acquisition.

The company's incremental interest rate on these borrowings is approximately 5.5%.

Other expense was 3.2 million compared to 1.3 million last year, reflecting higher fees on the sale of accounts receivable under the company's securitization program and higher minority interest expense.

Tax expense in the quarter as at effective rate of 33%, the same as the effective rate for the 9 months of 2005.

This rate reflects the benefits associated with the provisions of the American Job Creation Act of 2004.

Tax expense in the fourth quarter of 2004 was 34%.

The company expects to maintain the 33% effective tax rate in 2006.

Net income was 56 million and 11% of sales.

Another indication of our excellent profitability.

And on an industry comparative basis, profitability continues to be quite good.

Diluted EPS for the quarter was $0.61 per share, up 20% from last year.

The TCS acquisition had no impact from an EPS standpoint as the incremental operating income was offset by incremental interest expense and related cost on borrowings to fund the acquisition.

During the quarter, we generated a strong cash flow from operations of 75 million.

The cash flow from operations along with borrowings of 340 million under the company's credit facility and 12 million of proceeds from the exercise of stock options were used to fund capital expenditures of 16 million, payments relating to acquisitions of 408 million, and 2.7 million in dividends.

The balance sheet is in good shape.

Accounts receivable dates, sales outstanding ex-including the impact of acquisitions, were 65 days at the end of '05 compared to 64 days at the end of '04.

Inventory turnover. excluding the impact of acquisitions, remained relatively flat at 4.2 times.

Debt at year end was 781 million compared to 449 million at the end of '04, reflecting borrowings to fund the TCS acquisition.

The company's leverage and interest coverage ratios reflecting the pro forma impact of the TCS acquisition remained very strong at approximately two times and nine times respectively. 2005 EBITDA on a pro forma basis, including TCS, was approximately 442 million.

Availability under the company's revolving credit facility was 268 million at the end of the year, and the amount of receivables sold under our receivables securitization program was 85 million at year end compared to 80 million at the end of '04.

At December 31, '05, the TCS acquisition had the impact of increasing total assets by approximately 420 million.

Current assets increased approximately 100 million.

Primarily receivables of 52 million and inventory of 45 million.

Long-term assets increased approximately 320 million primarily relating to 285 million of goodwill and intangible assets, including acquired patents and fixed assets of approximately 35 million.

Current liabilities. primarily accounts payable and accrued liabilities, increased approximately 30 million.

Orders for the quarter and year are strong and reflect a book-to-bill ratio of approximately 1.01 to 1 and 1.02 to 1 respectively.

Certainly, from a financial perspective, it was an excellent quarter.

Before I turn the call over to Martin, I would like to provide a brief overview of the assumptions on which the company's 2006 sales and EPS guidance were based.

Current analyst estimates are varied in terms of their treatment of option expense and the TCS acquisition, so we felt some clarification would be helpful.

Sales are estimated in a range of 2.25 billion to 2.3 billion or growth over 2005 of 24% to 27%.

This includes sales of approximately 350 to 365 million for TCS.

The 2006 TCS sales exclude the sales of certain discontinued products.

Growth excluding the TCS acquisition is estimated at 7 to 9%.

2006 EPS is estimated at $2.56 to $2.63. 2006 EPS guidance includes the following assumptions.

The guidance is based on a 33% effective tax rate, the same tax rate as in 2005.

The 2006 guidance includes stock option expense of approximately $0.08 per share.

On January 1 of '06, the company is required to start providing for stock option expense in accordance with statement of financial accounting standards 123.

Prior to January of '06 under GAAP, stock option expense was disclosed in the company's financial statements but not expensed.

There was therefore no stock option expense in 2005.

If 2005 EPS were adjusted to reflect this expense, EPS would be reduced by $0.05 from $2.28 to $2.23. 2006 guidance also reflects an increase in operating margins at TCS from approximately 7.5% in December to 8 to 8.5% for the full year.

After deducting the incremental interest expense on debt associated with the acquisition, this results in accretion of $0.03 to $0.05 per share for the year which is expected to occur in the second half of 2006 as operating margins ramp up.

As we have previously stated, the management team is fully committed and is in the process of implementing profit improvement actions to move TCS margins up to the average of the company over time.

We look to exit 2006 in low double digit territory.

On a consolidated basis, including TCS results, we expect consolidating operating margins in the range of 17.5 to 18% for the full year 2006.

EPS growth, using pro forma 2005 EPS after option expense, is 15 to 18% in 2006 over 2005.

EPS growth, excluding the accretion from TCS, is 13% to 16% over 2005.

Martin will now provide an overview of the business and current trends.

Thank you, Diana.

And good afternoon.

Thank you for joining on this conference call, and welcome as we start the new year.

To all of you, happy new year and a lot of success.

As Diana said, I will provide some highlights of the year 2005 and the fourth quarter, talk and discuss some trends in our business, and give additional comments to our outlook to 2006.

We are very pleased with the results of the year 2005 and the fourth quarter.

We achieved new records in sales and EPS in the fourth quarter and for the full year 2005, and we maintained our industry leading growth and profitability.

The fourth quarter sales reached a new record of $508 million, for the first time in the history exceeding the $5 million mark in a quarter.

Even excluding the $35 million of sales of TCS that came in in December, the company would have reached a new record at $473 million in sales, a 20% increase in local currency, 17% in U.S. dollars over our prior year.

Also strong without TCS sequential growth of 6% in U.S. dollars, 7% in local currency.

We're very pleased that the sales were broad based, further strengthening our position in all our end markets and geographic regions.

With the exception of the automotive business which was up in single digit numbers, all other segments had double digit growth in the quarter.

We have seen the strongest growth, 33%, in mobile devices in the quarter.

Geographically the strongest growth was in Asia.

For the full year, we achieved a strong growth, as Diana said, from $1.530 billion to $1.8 billion which is an 18% increase.

This growth as achieved by strong organic growth, 8% in the year, and complimented by certain strategic acquisitions that we have talked about during the year 2005.

Organic growth was largely driven by winning new business and the development of new application specific products for next generation equipment of our customers.

More than 20% of our sales again came from these new products.

We complimented this organic growth with some successful acquisitions that were implemented during the year, and we intend to continue that strategy to compliment our organic growth with such acquisitions.

They usually are complimentary, add complimentary strengths and are filling a gap in our portfolio.

To fill that gap in our portfolio with these acquisitions, it allows us to have a faster market penetration usually at lower risk, better returns than long-term clean-fill startups.

Obviously the company will continue to focus very, very strongly on acquisitions.

If you look in the past history, usually 20 to 25% of our growth came from acquisitions. 2005 was somewhat more exceptional where about 50% of our growth came from these acquisitions, and I think it's a very good strategy that brings excellent returns for the company.

Profitability and cash flow remained also strong in the company.

We maintained, as I mentioned, industry leading operating profit margins in the fourth quarter at 19.3%, the same as in the third quarter, and that excludes TCS.

It's up from 18.8% a year ago.

Increasing profit margins in this environment where enormous cost pressures come from rising material costs, energy costs, transportation costs and other inflationary increases is an outstanding performance of the company.

We expect to continue these programs of cost control, implementing new application specific products in order to maintain strong margins in our core business.

In order to mitigate further pressure coming from these cost increases, we have introduced price increases, not only in the coaxial cable business that Diana mentioned earlier, but also in other segments of our business that include certain communications related markets, industrial, and the military aerospace market.

Overall, we still see that there is quite some pricing pressure and a challenging pricing environment, so it's going to be kind of a battle between what price increases can be forwarded against the cost increases that we can avoid from our suppliers.

Diana already mentioned that TCS operating profit margins are lower than Amphenol's average, approximately 7.5% in December of 2005.

We are very confident that over time we have the ability to increase the margins of TCS to a higher level and approaching over time Amphenol's average margins.

We have started to take several initiatives to this effect.

Some of these initiatives include the transfer to lower cost sourcing, lowering our manufacturing cost, lowering the tooling cost in this business, which is very important, also to start some cross selling activities and also reviewing some of the non-as-profitable business that TCS has today as a subject of a potential pruning.

Overall, as Diana said, we expect that margins can improve such that we come in double digit territory by the end of 2006.

A word to EPS.

The strong top lying growth and corresponding good converging margins have allowed us to raise EPS to new record levels.

In the fourth quarter, we achieved $0.61 a share, the high end of our guidance, a new record for the company for a quarter and another record for the full year, $2.28 a share, a 25% increase over the Year 2004.

Cash flow also remains strong, which allows us to continue to make investments in the future.

If we continued to deploy that cash flow towards the optimum opportunity for returns, and that will include certainly the continuation of investments in our tooling and new equipment to further organic growth.

We continue to look at acquisitions.

We have several in the pipeline.

The smaller companies that fill out our gap.

And we clearly look at reducing that as well as continuing our deployment or repurchase of stock of the company.

All these opportunities for deploying cash will be reviewed from an ongoing basis to maximize the returns.

Now let me make a few comments on the trends in the business itself.

As expected, fourth quarter was seasonally strong, which is good double digit growth, as I mentioned, in all segments except the automotive area which was up about 4% year-over-year.

In the military aerospace market, we had again a quarter of excellent growth. 21% over last year.

We are very pleased with the press of our participation in defense programs and the increasing penetration in the commercial aircraft business.

We believe that the trend in this market will continue strong into next year.

We had essentially sequential growth in the military aerospace segment quarter after quarter throughout 2005, and we believe that this trend will continue.

In the industrial market, we had strong growth of 10% in the quarter over last year.

This growth is primarily driven by increasing performance requirements in certain of our industrial markets.

The medical market, the rail transportation and geophysical applications require a much more sophisticated interconnect solution than we have developed.

As a result of this, we believe that the strong trend in industrial market will also carry into 2006.

As far as the automotive market is concerned, we believe that the kind of slow trend of car production will continue for some time.

However, as we participate essentially in the new electronics and cars, we believe that we will achieve and continue to achieve certain growth.

I mentioned that we achieved about 4% in spite of a relatively sluggish automotive market and that was essentially due to the fact that we continued to participate in the new GPS systems, in the new XM radios and man other applications, new applications for safety devices that allow us to grow in that field.

Communications was kind of an untraditional quarter for us as usually the fourth quarter is a seasonally slower quarter.

We, however, grew 18%.

It was primarily driven with some new business developments with customers, but more importantly because of weather-related rebuilding activities that have started in the fourth quarter and have certainly contributed to sales in that quarter.

Maybe about $3 to $4 million dollars, in that range.

We would expect in the first quarter that rebuild activity not to continue because of these weather-related situations to the same extent and to be somewhat seasonally lower.

Sales in the mobile device market were very strong.

We grew 33% organically, 67% including the acquisitions that we made earlier this year reflecting excellent seasonal demand but, in addition, it reflects the addition of additional sales of new products that ramped up very strongly throughout the quarter.

It is hard to predict what will happen in the first quarter.

For certain phone models, we see continued strengths far beyond what we have seen in the past.

New models with new features with many of our new products on it.

But generally the first quarter has more of a seasonal slowdown, so it's hard to see where that goes.

We don't expect the first quarter to be as strong as the fourth quarter was.

As far as the mobile infrastructure market is concerned, we saw a continued moderate performance of the market itself.

We have grown 8% year-over-year in that market and very pleased with this growth because the installation market has certainly slowed down during the quarter, and the OEM equipment market remained relatively modest.

So we clearly gained some additional business and position.

In addition, TCS contributed and will continue to contribute even stronger in the future to our position in the mobile infrastructure market.

The 8% growth that I mentioned excluded TCS.

With TCS, the growth was about 19% in the quarter, so obviously TCS has a strong position in this, and we are very, very excited about the opportunity and the complimentary strength that TCS will bring to this market for additional growth in 2006.

Most rewarding, though, is our performance in the IT related markets, service storage systems in the fourth quarter.

We experienced the highest growth, all organic, in the fourth quarter of this year of about 11%.

You remember we were throughout the year ramping up but still in single digit territory.

Now we're moving up into the double digit territory which actually is a reflection on the anticipated increase in demand for the new high speed interconnect product that gained clearly momentum in the fourth quarter.

We expect that trend to continue.

In addition, we believe that TCS will, through their strength in the IT related markets, increase and enhance our position very strongly with opportunities for cross-selling and so forth as we move into 2006.

We are excited about the future potential of the combined Amphenol and TCS in the IT related markets.

So overall, apart from some seasonality, we have a very positive outlook in most of our market segments that we serve.

Diana gave already an outlook for the full year and some guidance relative to sales, and EPS and gave also some outline of the underlying assumptions relative to that guidance.

It is important to understand that we start to expense the stock options in 2006 which certainly has an impact, not only for the full year, but also already on the first quarter with about $0.02 a share.

I'd like to give some guidance also for the first quarter of 2006 that we had in our press release.

We assume at this point in time sales in the range of 535 to 545 million and EPS in the range of $0.57 to $0.59 a share.

As historical patterns show, the first quarter is usually seasonally somewhat slower than the fourth quarter.

Even if these numbers would suggest significant growth over the year 2005, because of the inclusion of TCS, I'd like to stress that we, historic comparisons, Amphenol to traditional, we believe that the first quarter will be slightly below the performance of the fourth quarter, but obviously we have a lot of opportunities and we will work very hard to make sure that the first quarter comes in very strong and at the record levels of the fourth quarter.

We are excited about our market position and our competitive strength, and we are confident in our organization and our ability to take advantage of the many opportunities in front of us.

We look forward to a very good start in the first quarter and an excellent record year 2006 for Amphenol.

With this, I'd like to open up for some questions that you may have.

Thank you.

At this time we will begin our question and answer session.

[OPERATOR INSTRUCTIONS] Our first question comes from Matt Sheerin.

Thanks, Martin, and good afternoon.

Good afternoon.

Just a question on your hand set business, looks like your fastest growing business.

Could you tell us what that represents as a percentage of sales?

And how much more do you think you can expand your share in that business either with additional customers or additional content within phones?

Well, this is a very good question, and we ask ourselves that question every day.

We are actually very excited about that market because we have a series of new products.

I'm going to share this with you in a minute.

But it is about 10% of our sales roughly, mobile phones.

Obviously it fluctuates.

Now, with TCS being included it will be probably more like 8% of our total sales.

So, the impact of TCS is there.

But the mobile handset market has been very strong in the fourth quarter, not only seasonally, because of new launches.

We have developed a series of new products that are very exciting to our customers.

I just want to mention the world's lowest hinge that is available in the market, we have introduced that to the market.

There is such excitement because everybody wants to make just smaller phones and sliding phones.

Not only flip phones.

We obviously have all these hinges and their related connectors on the very popular phone, called the razor phone, as well - - both for the CDMA applications as well as the GSM applications.

The technology there becomes very complex, because you're transmitting actually signals of screen from one part of the telephone to the keyboard on the other phone, and all of this has to work through hinges and so forth.

It is a real integrated solution.

We are excited about these opportunities that we have, not just to have all the commodities that go into a telephone, but also these advanced products.

That will continue to drive our growth as far as I can see it, and therefore I am a little bit more optimistic, if you want, for the first quarter because of these exciting new products and not just looking at total production of phones per se, which we believe, in the year 2006, will go up again and certainly exceed the 800 million mark.

We continue to serve more of half of the world production of mobile phones with our products.

Thank you.

Our next question comes from Michael Walker.

Thanks.

Good afternoon.

Good afternoon, Michael.

How are you?

I'm good.

Good.

I have a question about your first quarter guidance.

You mentioned 535 to 545 million in total revenues, and then I think, Diana, you said that you expect TCS to add 350 to 365 for the full year.

That's right.

Let's say we talk about 360 and we divide that by 4.

We get about 90 million per quarter.

And if I subtract that 90 million out of the 540 mid-point of the range first quarter, I get 450 in core business, core Amphenol business, which would be down somewhat I think from where we were in December.

I guess I'm kind of asking the larger question.

Sure.

Go ahead, Diana.

The TCS results during the year. as they start out at the lower point in the first quarter and sort of ramp up from there, so the core business or the non-TCS business is sequentially down a couple percent.

Okay.

As I said, the TCS business starts off at a lower level and then ramps up.

I think I had said in the earlier part of the call in the fourth quarter that they did about 83 million in sales for the quarter.

It starts off more at that kind after level and ramps up from there.

So even if you are down a couple of percentage points, that's still - - a year ago, you were up 1%, I guess, sequentially.

So just wondering if you can offer some comments in terms of what you see going on in the core business in Q1.

This is very good, Michael.

As you may recall, I think we guided last year for the first quarter down and achieved essentially a slight increase over this.

I think we're doing about the same because from a seasonal trend you would expect that you're somewhat slower in the first quarter.

There's no particulars that would give us pause that there's a problem, but it is just kind of a more traditional seasonal pattern that we are modeling here.

At the same time, we are very confident and we've worked very hard to get these 2 percentage points gap here somewhat bridged as we move forward.

I don't want to raise that expectation that it could happen, but, there is opportunity clearly that we see in front of us.

Okay.

And then just in terms of TCS specifically, it looks like you're walking away or shutting down, let's call it, 10 - 15 million or so of that business.

Is that pretty much the PCB fabrication business?

Well, there are a series of products that we are looking at and probably lines that we are looking at.

Obviously the PCB shop itself is also one of those that we have a close look at.

If we look at $15 million down, the run rate of the company we haven't even done yet anything. 83 million times four is about $330 million and not 360, 370.

So the pruning could have some effects, but it would have very positive effects certainly on EPS and earnings.

Okay.

And to my last question, just a quick model question.

What should we use for interest expense in the first quarter?

Well, the incremental debt's about 396 million, 5.5%, so I think if you sort of look at that on top of your traditional model, it should about get to the right place.

That's another 5 million on top of what you did in December?

Well, on top of - - we had one month of that in the fourth quarter.

Okay.

So two-thirds of that.

Okay.

Thanks a lot.

Thank you, Michael.

Our next question comes from Thomas Dinges.

Hi.

Good afternoon.

Good afternoon.

A quick one Martin.

To go back to some of the efforts you are making, both with TCS and within the core business, to offset some of the material's costs, first could you just, maybe Diana, could you quickly just quantify what you think materials might have hurt you, either on a sequential or year-on-year basis on the gross margin side, and then secondly, Martin, as you ran through that you're trying to raise some prices here and there, and you said it's a bit of a struggle, how pervasive through the product line is the attempt to raise prices and how much do you think you could recoup, meaning if all of a sudden you're seeing material's costs hurt you by 100 basis points, or something along those lines, I'm just throwing that figure out, you hope to recoup two-thirds, maybe three-quarters, 80% of it, over the course of, say, the next year.

Any clarification there would be helpful.

I just jump to the second question right away, I think we have demonstrated in Q4, that without the pricing increases we can stem some of the material cost increases.

We have done that quite successfully.

Obviously with somewhat higher volume in the fourth quarter.

If you don't have that volume effect, if we don't assume in the first quarter, obviously we would look at some of the pricing to offset that.

But you're not very far away to assuming that somewhere between 50 and 100 basis points is the impact of this material - - of these cost increases that we're trying to mitigate and thereby stabilize the margins.

At the same time, we continue to work on these application specific products that have different price points and so forth.

So the mix will help us through this difficult time, and we certainly don't have a forecast when the buyers' market will shift into a sellers' market, but I don't think it's in the near future.

Okay.

Thank you very much.

Thank you.

Our next question comes from - -

[Amed Darinani], RBC Capitol Markets

Good afternoon.

Good afternoon.

Martin, on the TCS acquisition, realizing [inaudible] has been diluted on the first half of '06, I know you guys typically flow through most restructuring charges through your P&L.

So is that what will actually impact the TCS[acquisition] negatively and could you talk about what range of restructuring charges that you're looking at?

I wouldn't say that they were restructuring charges.

There are some charges that relate to the purchase accounting that are heavier in the first part of the year, and there are, if you will, some of these products that Martin talked to you about before that may be slowed or discontinued, carry certain negative margin characteristics.

And so, as we go through that process, that margin loss will be more in the first half than in the second half.

I'd say those are really the two factors.

Not restructuring charges.

That is a great opportunity, and the opportunity lies in the fact that margins of Amphenol are traditional are at 19% for the year or 19.2% for the year to be exact without TCS.

That margin will be just reduced by the lower margin of TCS as you consolidate the numbers, but that's where the opportunity is.

We have been in Amphenol about, I think, maybe three years ago or so around 17%, and we worked our way up over time to these higher numbers and that's exactly our plan for this year, which gives tremendous opportunity for value creation.

All right.

And then, just as you look at the stock option expense, is it all flowing through your SG&A or is there some component of it in the costs as well?

Could you just break that down for us?

It all goes through SG&A or will go through SG&A.

All right.

Thanks a lot.

Okay.

Our next question comes from Steven Fox.

Hi.

Good afternoon.

Good afternoon, Steve.

How are you?

Good.

Could you maybe talk about the 8% organic growth you're looking for for 2006?

Just maybe put some ranges around the serve markets where you think you could have above average versus below average growth?

That's a very good question.

Actually, it's very good to point that 8% out, because this is exactly what we achieved in organic growth in the Year 2004. 2005.

Excuse me.

And I think I mentioned earlier that we assume that the economic climate in 2006 will be very similar to the one in 2005.

So from a strength standpoint, above average growth, we assume that the military industrial market will continue to be above that level.

The automotive will clearly be below that level.

Handsets, it depends really on price points.

Could be just right in there, not from a volume standpoint, but just from a pure dollar sales growth situation.

Internet related for the year was not in the double-digit area, but that could be a little slightly ahead of the 8% that we had last year.

And then you have the mobile infrastructure market.

It was very, very strong because of our expansion and penetration in the installation market, but doesn't have yet the outlook of being very flamboyant for the year 2006.

A lot will depend what happens in the deployment of certain new generations of equipment.

One 3G, as well as what happens in China.

If China truly will get licenses of TDS, CDMA some time this year, I think we can see clearly double-digit growth in that area.

For now, we don't assume that to happen.

Okay.

Thank you very much.

Thank you, Steve.

Our next question comes from Kevin Sarsany.

Hi.

I'd like to go back a couple questions.

You were talking about the first half being dilutive with the TCS acquisition and the second half being accretive and you mentioned $0.03 - $0.05.

Can you put numbers on the first half and the second half?

I think we expect most of the accretion in the second half, in the last two quarters.

But in the first two quarters are you talking $0.04 dilution?

No.

No.

It would be very small.

Okay, okay.

And then just a quick follow-up on that.

In the cable segment, you put prices increases in December and for the quarter, they increase - - volume or total change in revenue was about 14 plus%.

How much effect did the price have on the volume side?

Obviously there's pretty good volume that you haven't seen in a while.

What's going on there?

I think this is a very important question to answer here.

I mentioned earlier that about half of that un-seasonal growth in the fourth quarter came from weather-related situations and we assumed that a big portion also came from some [preprice] especially in the national market from this anticipated price increase which will not necessarily repeat to the same extent.

That's in the first quarter, and that's the reason why I mentioned that the first quarter is expected to be somewhat down over the fourth quarter in cable.

When you say weather-related, are you talking Katrina?

Yes, Katrina

Okay.

Yes.

All right, thank you.

Thank you.

Our next question comes from Jeff Beach.

Yes.

Good afternoon.

Hi.

Good afternoon.

Can you comment on how the acquisitions you made in the first two quarters of 2005 are performing?

Specifically, have you seen organic growth and are the margins yet beginning to approach those of your average?

Sure.

I think that the acquisitions are performing well for the particular markets that they're in.

They're all - - they're each - - each of the four that we did during the year are in different markets.

They are growing and from a profitability standpoint there's quite a wide range, but they're all, I would say, performing well and in line with the expectations that we had.

So --

All right.

Thanks.

Sure.

And our next question comes from Carter Shoop.

Great.

Thanks.

I have a question on your outlook for '06.

Does that include any acquisitions?

And then also does it include any slight divestitures of the TCS business, like PCBs, for example?

Thank you very much for allowing me to clarify that situation.

We never forecast any of the acquisitions, only the ones that we know like TCS which we have closed but no other ones.

But I mentioned that there are a few in the pipeline, and we continue to work that pipeline of these smaller companies that we always look for, maybe $10, $20 million that can close a gap.

I think you had a second question which I couldn't hear very precisely.

There was something in the phone.

Sure.

For TCS, are you forecasting any of those divisions to be spun off?

For example, if you were to divest the PCB division, would we see a downward revision to '06 guidance?

No.

We would not.

The only thing that we would see is maybe the revenues that we are projecting, as we prune them away, that there could be some change.

But as far as EPS is concerned, they would have actually a reverse positive effect.

At this point in time, we do not assume any other guidance that we have in front of us relative to the TCS business.

I think the TCS business we have forecasted prudently at this point in time, assuming some of this pruning already.

And a last question here, on TCS, given where the company closed the December quarter and the momentum it has going into '06, what gives you so much confidence that we're going to see a re-acceleration in growth rates for that business in the back half of '06?

Well, acceleration of growth.

We will have significant growth over the first quarter of 2005.

So as far as year-over-year growth rates, we are going to continue to see growth.

We are talking about sequentially maybe in the core business to be 1 to 2% down over the fourth quarter.

When you look at the TCS assets, it sounds like you are expecting that to be flat or down from the 83 million.

It would take a pretty substantial ramp-up to hit the midpoint of your range for the TCS in '06?

Yes And that is, I think, very much related to the actions that we're talking about.

Some cross selling, the combination of Amphenol and TCS bringing some complimentary strength to customers and so forth where we hope that we will see some of these effects starting in the second quarter and then accelerating in the third and the fourth quarter.

Obviously we need customer approvals.

We need all sort of audits that customers make of products and so forth.

For example, if we want to increase our own content on printed circuit board assemblies and so forth, usually you have to go through some audit and approvals of the customers, which can take somewhere between 3 to 6 months.

We're very confident that over that time period that we are talking about, the three to six months, we can see some of that acceleration to happen.

Is there any way to quantify the opportunity in regards to cross-selling for TCS for '06?

The opportunity is quite significant because what we have right now is a run-rate of a business that is around $330 million.

We are assuming already in our guidance here the 360 million.

So you have already to find that 30 million additional business right from there.

Obviously they haven't - - the TCS hasn't grown very significantly in the past, so that needs to be turned around.

So alone the $30 million of additional business in the initial guidance that we have, which is prudent at this point in time, we feel that we have to put a lot of effort in in order getting there.

So you have the quantification right there.

Great.

And last question here.

Do you think you saw any pre-ordering for the connectors in regards to the price hike or is it just for the cable?

No.

We haven't seen any pre-ordering for the connectors in any of the segments.

Thank you.

Thank you.

Our next question comes from Sony Hall.

Your line is open.

You may ask your question.

Please un-mute your phone and answer your question.

Well, maybe we go to the next and then sort out that technical situation later.

Our next question comes from Phil [Marriott].

Good afternoon.

Hi.

Good afternoon.

Nice quarter as usual.

Thank you.

I had a few financial questions for Diana.

I'm curious about your thoughts for D&A and CapEx for the year, also curious about your thoughts in terms of working capital.

It sounds like - - I would assume that there's not much of an opportunity for working capital given where the TCS was, but I'm curious about that.

And then I noticed a small inventory amortization in your cash flow statement in the quarter.

And I just wonder if there's more step-up to come and if that's part of the guidance for the year.

Thanks.

Sure.

Okay.

I'll start with the last one first.

Okay.

There is more to come of that.

It's about exactly the same as what you saw in the fourth quarter and that will come out in the first quarter and then that's done, and that is included in the guidance.

Okay.

From a Cap Ex standpoint, roughly 75 million kind of range probably for next year.

We run a little bit I think under 3% of sales.

TCS probably runs slightly over.

So it would be somewhere in that range.

From a depreciation standpoint, about the same as CapEx.

Okay.

From a working capital standpoint, I think on a consolidated basis with TCS, the ratios will probably improve slightly.

So I don't think there will be a dramatic change there from a core Amphenol standpoint.

You know, we still look for inventory turnover improvement next year.

I think that's one area they we should certainly continue to focus on.

I think in terms of receivables and payables, we do a pretty good job where we are given the global nature of the business.

In terms of your inventory turnover improvement, what would be a nice - - a good level for you to be at?

What would you like to see?

I think we closed the year at about 4.2 times.

Would hope we could get - - start to move up, 4.5 times, maybe 5 times at some point here.

Okay.

Thanks very much.

Okay.

Thank you.

And our next question comes from Mark Hassenberg.

Good afternoon.

Hi.

Good afternoon, Mark.

On TCS, you're talking about an opportunity over time of significantly more than more than doubling the level of profitability.

Even for this year, exiting the year at possibly a 50% improvement.

And you've mentioned some things, purchasing material costs, restructuring, discontinuing some operations, tooling, and there must be some corporate allocations.

Could you dig a little deeper for us or explain a bit more where those improvements are coming and how important are things like material costs or tooling in getting to those targets that would get them up to Amphenol standards?

Yes..

This is obviously a very lengthy question and answer, and I'd like to keep it brief, but all the areas that you mentioned, we need to work on and will work on.

Just to point out a few.

Number one, most of the material that TCS today procures is from high cost areas.

And what I mean by material, it's components.

As TCS is not manufacturing a great deal of their components in-house.

It's all outsourced.

It's outsourced primarily in high cost areas.

We have a tremendous experience in sourcing in low cost areas, not only in our own factories but with vendors in low cost areas, so that's really one of the main opportunities.

Obviously it is not something that can be implemented within a few weeks, because the customers will have to come and audit and approve those new sites and those new locations as we move forward.

But the opportunity is very dramatic.

You have seen it in our own numbers here over the past - - if you go to low cost areas for sourcing of components in-house or externally, it's just a tremendous savings.

And the second thing is just pure tooling investments.

We have an example here, and I give you just one example, where we have an additional opportunity of sales that TCS on their own never attacked because the investment was just too high to justify the incremental sales.

Well, we found out that with our sources for tooling and so forth, we can pay about 25% of that, what they anticipated, which makes that piece of business extremely attractive for us.

So there are a series of these kind of elements and initiatives that we are taking that has great potential, but obviously we will have to be patient and have a gradual increase of these margins over time.

It's not going to be like step functions and so forth.

But that is wonderful because it's gradual accretion, gradual opportunity for creating value.

Thank you very much.

Thank you, Mark.

Our next question comes from Jim Suva.

Thank you.

Can you give a little bit about the debt assumption as far as the terms of the due dates?

And then on that same note the priorities for cash deployment, debt paydown versus stock buyback versus acquisitions and dividends.

Thank you.

Sure.

The vast majority of the company's debt at this point, other than some small foreign piece and some small capitol leases under a revolving credit facility that we put in place in July of this year.

It's a five-year facility.

So there are no maturities of debt.

I think there was something like 16 million in current and on the balance sheet, and that's foreign borrowings.

From a deployment of cash perspective, I think it's very much the same as I think what Martin said earlier.

Certainly operating deployment of cash for organic growth to start with new product development, CapEx and so forth and then the continuation of our tuck-in acquisition strategy which we think is a very fine compliment to the company's organic growth.

And then debt service and perhaps some stock buyback depending on what makes sense, given the particular dynamics in the marketplace at the time and the company's debt level at the time.

Great.

Thank you.

Thank you.

Maybe if there's one more question, operator.

Our next question comes from [Sang]

Yes?

Our next question comes from Greg [Fruve].

Hi, guys.

Good quarter.

Hi.

Good afternoon.

How are you doing?

I just had a quick question.

Martin, I know that given the growth that you've experienced and that you're forecasting with the growth in handsets, I know that you're involved with a lot of the very small and highly engineered hinges that are on a lot of the clam shell shaped phones, but at the consumer electronics show -- and we've seen a lot of the different slide type phones, and I'm wondering if, as we see sort of a migration partially towards that type of handset if you're involved -- your products are involved in those products.

Yes.

I think I tried to mention it.

Probably I didn't.

I wasn't very clear.

We have developed the world's thinnest sliding hinge available at this point in time, and customers come to us and everybody wants to have it exclusive.

It's a real break through.

We have other, many other sliding hinges, rotating hinges and so forth that I use for consumer electronic products where you have the camera turned and not just hinged like clam shells and so forth.

So we have a whole plethora of hinges in all directions.

But the most exciting one that I really see is this low profile sliding hinge that everybody's really excited about.

And I think we will have significant opportunities with this product as we move forward.

That's great.

Thanks, guys.

Thank you.

Well, with this, I think we would like to conclude our conference call.

I would like just to stress once more that the fundamentals in Amphenol really haven't changed.

We are excited about the opportunities.

We look forward to strong performance.

Obviously the relatively large addition of TCS changes some of our numbers that we are used to. 20% and so forth in margins.

So we have to put some new yardsticks in.

But overall Amphenol's fundamental remains strong, and the TCS addition creates an incremental opportunity that we didn't have before.

So in total I think we have a winning opportunity here, and we are on a great path to success for 2006 and look forward to another record year.

Thank you very much.

Good-bye.

And thank you for participating in today's teleconference and have a great day.

You may all disconnect.