AMPHENOL CORP /DE/ - Quarter Report: 2015 March (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 1-10879

 

 

AMPHENOL CORPORATION

 

 

358 Hall Avenue

Wallingford, Connecticut 06492

203-265-8900

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of April 30, 2015, the total number of shares outstanding of Class A Common Stock was 308,921,730

 

 

 

Table of Contents

 

Amphenol Corporation

Index to Quarterly Report

on Form 10-Q

 

		Page
Part I	Financial Information
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014	2
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014	3
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014	4
	Condensed Consolidated Statements of Cash Flow for the Three Months Ended March 31, 2015 and 2014	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18
Part II	Other Information
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	20
Signature		22

 

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMPHENOL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in millions)

 

		March 31, 2015			December 31, 2014
Assets
Current Assets:
Cash and cash equivalents		$	969.9		$	968.9
Short-term investments		381.2			360.7
Total cash, cash equivalents and short-term investments		1,351.1			1,329.6
Accounts receivable, less allowance for doubtful accounts of $21.2 and $20.2, respectively		1,091.8			1,123.7
Inventories		871.4			865.6
Other current assets		219.5			185.2
Total current assets		3,533.8			3,504.1
Land and depreciable assets, less accumulated depreciation of $853.9 and $849.6, respectively		589.5			590.7
Goodwill		2,594.5			2,616.7
Intangibles and other long-term assets		307.8			315.5
		$	7,025.6		$	7,027.0
Liabilities & Equity
Current Liabilities:
Accounts payable		$	582.9		$	618.4
Accrued salaries, wages and employee benefits		99.0			109.9
Accrued income taxes		98.9			90.8
Accrued dividends		—			38.7
Other accrued expenses		143.3			186.2
Current portion of long-term debt		1.6			1.6
Total current liabilities		925.7			1,045.6
Long-term debt, less current portion		2,757.0			2,672.3
Accrued pension benefit obligations and other long-term liabilities		363.7			371.2
Equity:
Common stock		0.3			0.3
Additional paid-in capital		688.8			659.4
Retained earnings		2,532.3			2,453.5
Accumulated other comprehensive loss		(271.5		)	(205.8		)
Total shareholders’ equity attributable to Amphenol Corporation		2,949.9			2,907.4
Noncontrolling interests		29.3			30.5
Total equity		2,979.2			2,937.9
		$	7,025.6		$	7,027.0

 

See accompanying notes to condensed consolidated financial statements.

 

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(dollars in millions, except per share data)

 

		Three Months Ended March 31,
		2015			2014
Net sales		$	1,327.1		$	1,246.1
Cost of sales		902.5			857.2
Gross profit		424.6			388.9
Acquisition-related expenses		—			2.0
Selling, general and administrative expense		164.4			154.8
Operating income		260.2			232.1
Interest expense		(17.0		)	(19.1		)
Other income, net		4.1			4.1
Income before income taxes		247.3			217.1
Provision for income taxes		(65.5		)	(57.3		)
Net income		181.8			159.8
Less: Net income attributable to noncontrolling interests		(2.0		)	(1.3		)
Net income attributable to Amphenol Corporation		$	179.8		$	158.5
Net income per common share - Basic		$	0.58		$	0.50
Weighted average common shares outstanding - Basic		310,046,534			315,056,964
Net income per common share - Diluted		$	0.57		$	0.49
Weighted average common shares outstanding - Diluted		317,985,645			322,354,312
Dividends declared per common share		$	0.125		$	0.10

 

See accompanying notes to condensed consolidated financial statements.

 

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in millions)

 

		Three Months Ended March 31,
		2015			2014
Net income		$	181.8		$	159.8
Total other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(67.9		)	(15.3		)
Unrealized gain on cash flow hedges		0.6			0.3
Defined benefit plan adjustment		1.6			—
Total other comprehensive loss, net of tax		(65.7		)	(15.0		)
Total comprehensive income		116.1			144.8
Less: Comprehensive income attributable to noncontrolling interests		(2.0		)	(0.9		)
Comprehensive income attributable to Amphenol Corporation		$	114.1		$	143.9

 

See accompanying notes to condensed consolidated financial statements.

 

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(dollars in millions)

 

		Three Months Ended March 31,
		2015			2014
Cash from operating activities:
Net income		$	181.8		$	159.8
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		40.1			39.9
Stock-based compensation expense		10.1			9.3
Excess tax benefits from stock-based compensation payment arrangements		(3.6		)	(2.7		)
Net change in components of working capital		(40.1		)	(10.2		)
Net change in other long-term assets and liabilities		—			6.6
Net cash provided by operating activities		188.3			202.7
Cash from investing activities:
Purchases of land and depreciable assets		(40.0		)	(54.2		)
Proceeds from disposals of land and depreciable assets		0.3			0.5
Purchases of short-term investments		(104.5		)	(120.7		)
Sales and maturities of short-term investments		84.0			145.0
Acquisitions, net of cash acquired		(76.1		)	(9.0		)
Net cash used in investing activities		(136.3		)	(38.4		)
Cash from financing activities:
Proceeds from issuance of senior notes		—			748.8
Long-term borrowings under credit facilities		1,811.5			142.8
Repayments of long-term debt		(1,725.9		)	(801.1		)
Payments of costs related to debt financing		—			(5.7		)
Proceeds from exercise of stock options		16.0			13.7
Excess tax benefits from stock-based compensation payment arrangements		3.6			2.7
Payments to shareholders of noncontrolling interests		(3.2		)	(1.1		)
Purchase and retirement of treasury stock		(62.2		)	(121.1		)
Dividend payments		(77.5		)	—
Net cash used in financing activities		(37.7		)	(21.0		)
Effect of exchange rate changes on cash and cash equivalents		(13.3		)	(6.8		)
Net change in cash and cash equivalents		1.0			136.5
Cash and cash equivalents balance, beginning of period		968.9			886.8
Cash and cash equivalents balance, end of period		$	969.9		$	1,023.3
Cash paid for:
Interest		$	30.2		$	13.3
Income taxes		51.9			48.8

 

See accompanying notes to condensed consolidated financial statements.

 

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AMPHENOL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollars in millions, except per share data)

 

Note 1—Basis of Presentation and Principles of Consolidation

 

The condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014 and the related condensed consolidated statements of income, comprehensive income and cash flow for the three months ended March 31, 2015 and 2014 include the accounts of Amphenol Corporation and its subsidiaries (the “Company”).  All material intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements included herein are unaudited.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation in conformity with accounting principles generally accepted in the United States of America have been included.  The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year.  These condensed consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “2014 Annual Report”).

 

The Company effected a two-for-one stock split in the form of a stock dividend, payable to stockholders of record as of October 2, 2014, which was paid on October 9, 2014.  The share and per share information included herein has been retroactively restated to reflect the effect of the stock split for all periods presented.

 

Note 2—New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services.  To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract(s); (3) determine the transaction price(s); (4) allocate the transaction price(s) to the performance obligations in the contract(s); and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires advanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.  ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016 with early adoption not permitted.  The amendments may be applied retrospectively to each period presented or with the cumulative effect recognized as of the date of initial application.  The Company is currently evaluating ASU 2014-09 and does not anticipate a material impact on its consolidated financial statements.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), amending FASB Accounting Standards Subtopic 205-40 to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, the amendments (1) provide a definition of the term “substantial doubt,” (2) require an evaluation every reporting period, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that financial statements are issued. ASU 2014-15 is effective for fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently evaluating ASU 2014-15 and does not anticipate a material impact on its consolidated financial statements.

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which specifies that debt issuance costs related to a note shall be reported in the balance sheet as a direct deduction from the face amount of that note and that amortization of debt issuance costs shall be reported as interest expense.  ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be applied retrospectively.  The Company has evaluated ASU 2015-03 and believes it will not have a material impact on its consolidated financial statements.

 

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Note 3—Inventories

 

Inventories consist of:

 

		March 31, 2015			December 31, 2014
Raw materials and supplies		$	299.4		$	299.4
Work in process		295.4			282.8
Finished goods		276.6			283.4
		$	871.4		$	865.6

 

Note 4—Reportable Business Segments

 

The Company has two reportable business segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Company aggregates its operating segments into reportable segments based upon similar economic characteristics and business groupings of products, services and customers. The Interconnect Product and Assemblies segment primarily designs, manufactures and markets a broad range of connector and connector systems, value-added products and other products, including antennas and sensors, used in a broad range of applications in a diverse set of end markets.  The Cable Products and Solutions segment primarily designs, manufactures and markets cable, value-added products and components for use primarily in the broadband communications and information technology markets as well as certain applications in other markets.  The accounting policies of the segments are the same as those for the Company as a whole and are described in Note 1 of the notes to the consolidated financial statements in the Company’s 2014 Annual Report.  The Company evaluates the performance of business units on, among other things, profit or loss from operations before interest, headquarters’ expense allocations, stock-based compensation expense, income taxes, amortization related to certain intangible assets and nonrecurring gains and losses.

 

The segment results for the three months ended March 31, 2015 and 2014 are as follows:

 

		Interconnect Products and Assemblies						Cable Products and Solutions						Total
		Three months ended March 31,
		2015			2014			2015			2014			2015			2014
Net sales:
-external		$	1,242.7		$	1,159.1		$	84.4		$	87.0		$	1,327.1		$	1,246.1
-intersegment		2.3			1.1			5.1			5.3			7.4			6.4
Segment operating income		271.0			242.8			10.2			10.6			281.2			253.4

 

A reconciliation of segment operating income to consolidated income before income taxes for the three months ended March 31, 2015 and 2014 is summarized as follows:

 

		Three months ended March 31,
		2015			2014
Segment operating income		$	281.2		$	253.4
Interest expense		(17.0		)	(19.1		)
Interest income		4.5			4.4
Stock-based compensation expense		(10.1		)	(9.3		)
Acquisition-related expenses		—			(2.0		)
Other costs, net		(11.3		)	(10.3		)
Income before income taxes		$	247.3		$	217.1

 

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Note 5—Changes in Equity and Noncontrolling Interests

 

Net income attributable to noncontrolling interests is classified below net income.  Earnings per share is determined after the impact of the noncontrolling interests’ share in net income of the Company.  In addition, the equity attributable to noncontrolling interests is presented as a separate caption within equity.

 

A rollforward of consolidated changes in equity for the three months ended March 31, 2015 is as follows:

 

		Amphenol Corporation Shareholders
		Common Stock											Accum. Other
		Shares (in millions)		Amount			Additional Paid- In Capital			Retained Earnings			Comprehensive Loss			Treasury Stock			Noncontrolling Interests			Total Equity
Balance as of December 31, 2014		309.8		$	0.3		$	659.4		$	2,453.5		$	(205.8	)	$	—		$	30.5		$	2,937.9
Net income										179.8									2.0			181.8
Other comprehensive income													(65.7		)				—			(65.7		)
Payments to shareholders of noncontrolling interests																			(3.2		)	(3.2		)
Purchase of treasury stock																(62.2		)				(62.2		)
Retirement of treasury stock		(1.1	)							(62.2		)				62.2						—
Stock options exercised, including tax benefit		0.7					19.3															19.3
Dividends declared										(38.8		)										(38.8		)
Stock-based compensation expense							10.1															10.1
Balance as of March 31, 2015		309.4		$	0.3		$	688.8		$	2,532.3		$	(271.5	)	$	—		$	29.3		$	2,979.2

 

A rollforward of consolidated changes in equity for the three months ended March 31, 2014 is as follows:

 

		Amphenol Corporation Shareholders
		Common Stock											Accum. Other
		Shares (in millions)		Amount			Additional Paid- In Capital			Retained Earnings			Comprehensive Loss			Treasury Stock			Noncontrolling Interests			Total Equity
Balance as of December 31, 2013		316.4		$	0.3		$	489.8		$	2,424.4		$	(55.0	)	$	—		$	20.6		$	2,880.1
Net income										158.5									1.3			159.8
Other comprehensive income													(14.6		)				(0.4		)	(15.0		)
Payments to shareholders of noncontrolling interests																			(1.1		)	(1.1		)
Purchase of treasury stock																(121.1		)				(121.1		)
Retirement of treasury stock		(2.8	)							(121.1		)				121.1						—
Stock options exercised, including tax benefit		0.7					15.3															15.3
Dividends declared										(31.4		)										(31.4		)
Stock-based compensation expense							9.3															9.3
Balance as of March 31, 2014		314.3		$	0.3		$	514.4		$	2,430.4		$	(69.6	)	$	—		$	20.4		$	2,895.9

 

Note 6—Earnings Per Share

 

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Amphenol Corporation by the weighted-average number of common shares outstanding.  Diluted EPS is computed by dividing net income attributable to Amphenol Corporation by the weighted-average number of common shares and dilutive common shares outstanding, which relates to stock options.  A reconciliation of the basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three months ended March 31, 2015 and 2014 is as follows:

 

		Three months ended March 31,
		2015			2014
Net income attributable to Amphenol Corporation shareholders		$	179.8		$	158.5
Basic weighted average common shares outstanding		310,046,534			315,056,964
Effect of dilutive stock options		7,939,111			7,297,348
Diluted weighted average common shares outstanding		317,985,645			322,354,312
Earnings per share attributable to Amphenol Corporation shareholders:
Basic		$	0.58		$	0.50
Diluted		$	0.57		$	0.49

 

Excluded from the computations above were anti-dilutive stock options of 3,146,450 and 5,529,266 for the three months ended March 31, 2015 and 2014, respectively.

 

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Note 7—Commitments and Contingencies

 

The Company has been named as defendant in several legal actions in which various amounts are claimed arising from normal business activities.  Although the amount of any ultimate liability with respect to such matters cannot be precisely determined, in the opinion of management, such matters are not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.

 

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

 

Note 8—Stock-Based Compensation

 

Stock Options

 

In 2009, the Company adopted the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and its Subsidiaries (the “2009 Employee Option Plan”).  The Company also continues to maintain the 2000 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (the “2000 Employee Option Plan”).  No additional stock options can be granted under the 2000 Employee Option Plan.  The 2009 Employee Option Plan authorizes the granting of additional stock options by a committee of the Company’s Board of Directors and was amended in May 2014 to increase the number of shares of the Company’s Class A Common Stock (“Common Stock”) reserved for issuance from 32,000,000 shares to 58,000,000 shares.  As of March 31, 2015, there were 24,979,260 shares of Common Stock available for the granting of additional stock options under the 2009 Employee Option Plan.  Options granted under the 2000 Employee Option Plan and the 2009 Employee Option Plan generally vest ratably over a period of five years and are generally exercisable over a period of ten years from the date of grant.

 

In 2004, the Company adopted the 2004 Stock Option Plan for Directors of Amphenol Corporation (the “2004 Directors Option Plan”).  The 2004 Directors Option Plan is administered by the Company’s Board of Directors.  As of March 31, 2015, there were 140,000 shares of Common Stock available for the granting of additional stock options under the 2004 Directors Option Plan, although no additional stock options are expected to be granted under this plan.  Options granted under the 2004 Directors Option Plan generally vest ratably over a period of three years and are generally exercisable over a period of ten years from the date of grant.

 

Stock option activity for the three months ended March 31, 2015 was as follows:

 

		Options		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Options outstanding at January 1, 2015		27,787,920		$	31.60		7.09		$	617.2
Options granted		92,000
Options exercised		(742,280	)
Options forfeited		(92,680	)
Options outstanding at March 31, 2015		27,044,960		31.95			6.91		729.7
Vested and non-vested options expected to vest at March 31, 2015		24,835,981		$	31.54		6.83		$	680.2
Exercisable options at March 31, 2015		10,632,080		$	23.32		5.32		$	378.6

 

A summary of the status of the Company’s non-vested options as of March 31, 2015 and changes during the three months then ended is as follows:

 

		Options		Weighted Average Fair Value at Grant Date
Non-vested options at January 1, 2015		16,440,560		$	7.98
Options granted		92,000		10.30
Options vested		(27,000	)	9.51
Options forfeited		(92,680	)	7.94
Non-vested options at March 31, 2015		16,412,880		7.99

 

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During the three months ended March 31, 2015 and 2014, the following activity occurred under the Company’s option plans:

 

		Three months ended March 31,
		2015			2014
Total intrinsic value of stock options exercised		$	25.9		$	15.6
Total fair value of stock options vested		0.3			0.1

 

As of March 31, 2015, the total compensation cost related to non-vested options not yet recognized is approximately $87.4 with a weighted average expected amortization period of 3.26 years.

 

Restricted Shares

 

In 2012, the Company adopted the 2012 Restricted Stock Plan for Directors of Amphenol Corporation (the “2012 Directors Restricted Stock Plan”). The 2012 Directors Restricted Stock Plan is administered by the Company’s Board of Directors.  As of March 31, 2015, the number of restricted shares available for grant under the 2012 Directors Restricted Stock Plan was 171,230.  Restricted shares granted under the 2012 Directors Restricted Stock Plan generally vest on the first anniversary of the grant date.  Grants under the 2012 Directors Restricted Stock Plan entitle the holder to receive shares of Common Stock without payment.

 

Restricted share activity for the three months ended March 31, 2015 was as follows:

 

		Restricted Shares		Fair Value at Grant Date			Weighted Average Remaining Amortization Term (in years)
Restricted shares outstanding at January 1, 2015		18,340		$	47.72		0.39
Restricted shares granted		692		54.96
Restricted shares outstanding at March 31, 2015		19,032		47.98			0.15

 

The grant-date fair value of each option grant under the 2000 Employee Option Plan, the 2009 Employee Option Plan and the 2004 Directors Option Plan is estimated using the Black-Scholes option pricing model. The grant-date fair value of each restricted share grant is determined based on the closing share price of the Company’s stock on the date of the grant. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model for option grants requires management to make certain assumptions with respect to selected model inputs. Expected share price volatility is calculated based on the historical volatility of the stock of the Company and implied volatility derived from related exchange traded options. The average expected life is based on the contractual term of the option and expected exercise and historical post-vesting termination experience. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The expected annual dividend per share is based on the Company’s dividend rate.

 

Stock-based compensation expense includes the estimated effects of forfeitures, which are adjusted over the requisite service period to the extent actual forfeitures differ or are expected to differ from such estimates.  Changes in estimated forfeitures are recognized in the period of change and impact the amount of expense to be recognized in future periods.  For the three months ended March 31, 2015, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $10.1 and $7.6, respectively.  For the three months ended March 31, 2014, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $9.3 and $6.8, respectively. The expense incurred for stock-based compensation is included in selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Income.

 

Note 9—Shareholders’ Equity

 

In January 2015, the Board of Directors authorized a stock repurchase program under which the Company may repurchase up to 10 million shares of Common Stock during the two year period ending January 20, 2017 (the “2015 Stock Repurchase Program”).  The price and timing of any such purchases under the 2015 Stock Repurchase Program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, economic and market conditions and stock price.  During the three months ended March 31, 2015, the Company repurchased 1.1 million shares of Common Stock for $62.2.  These treasury shares have been retired by the Company and common stock and retained earnings were reduced accordingly.  Through April 30, 2015, the Company has repurchased an additional 0.6 million shares of Common Stock for $34.8.  At April 30, 2015, approximately 8.3 million additional shares of Common Stock may be repurchased under the 2015 Stock Repurchase Program.

 

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Contingent upon declaration by the Board of Directors, the Company generally pays a quarterly dividend on shares of Common Stock.  In the third quarter of 2014, the Board of Directors approved an increase in the quarterly dividend rate from $0.10 to $0.125 per share effective with the third quarter 2014 dividend.  For the three months ended March 31, 2015, the Company paid dividends of $77.5, which included declared dividends in the amount of $38.8 paid in March 2015.  For the three months ended March 31, 2014, the Company did not pay any dividends and declared dividends in the amount of $31.4 which were paid in April 2014.

 

Note 10—Benefit Plans and Other Postretirement Benefits

 

The Company and certain of its domestic subsidiaries have defined benefit pension plans (the “U.S. Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company.  The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory.  Certain U.S. employees not covered by the U.S. Plans are covered by defined contribution plans.  Certain foreign subsidiaries have defined benefit plans covering their employees (the “International Plans” and, together with the U.S. Plans, the “Plans”). The following is a summary, based on the most recent actuarial valuations of the Company’s net cost for pension benefits, of the Plans and other postretirement benefits for the three months ended March 31, 2015 and 2014.

 

		Pension Benefits						Other Postretirement Benefits
		Three months ended March 31,
		2015			2014			2015			2014
Service cost		$	2.3		$	2.0		$	—		$	—
Interest cost		5.8			6.0			0.1			0.1
Expected return on plan assets		(7.3		)	(7.1		)	—			—
Amortization of prior service cost		0.6			0.7			—			—
Amortization of net actuarial losses		6.5			4.0			0.1			0.1
Net pension expense		$	7.9		$	5.6		$	0.2		$	0.2

 

For the three months ended March 31, 2015, the Company did not make a cash contribution to the U.S. Plans and estimates that, based on current actuarial calculations it will make aggregate cash contributions to the Plans in 2015 of approximately $22.0, the majority of which will be to the U.S. Plans.  The timing and amount of cash contributions in subsequent years will depend on a number of factors, including the investment performance of the Plan assets.

 

The Company offers various defined contribution plans for certain U.S. and foreign employees. Participation in these plans is based on certain eligibility requirements. The Company matches the majority of employee contributions to U.S. defined contribution plans with cash contributions up to a maximum of 5% of eligible compensation.  During the three months ended March 31, 2015 and 2014, the total matching contributions to these U.S. defined contribution plans were approximately $1.2 and $0.9, respectively.

 

Note 11—Goodwill and Other Intangible Assets

 

As of March 31, 2015, the Company has goodwill totaling $2,594.5, of which $2,470.8 is related to the Interconnect Products and Assemblies segment with the remainder related to the Cable Products and Solutions segment.  For the three months ended March 31, 2015, goodwill decreased by $22.2, primarily as a result of a decrease of $59.8 due to the impact of translation offset in part by goodwill recognized related to an acquisition in the Interconnect Products and Assemblies segment made during the first quarter of 2015.  The Company is in the process of completing its analysis of fair value of the assets acquired related to certain 2014 and these 2015 acquisitions and anticipates that the final assessment of values of those assets will not differ materially from the preliminary assessment.

 

Other than goodwill and indefinite-lived trade name intangible assets with a value of approximately $52.3, the Company’s intangible assets are subject to amortization.   A summary of the Company’s amortizable intangible assets as of March 31, 2015 and December 31, 2014 is as follows:

 

		March 31, 2015						December 31, 2014
		Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
Customer relationships		$	302.9		$	99.4		$	299.8		$	92.3
Proprietary technology		53.8			27.6			53.8			26.5
License agreements		6.0			6.0			6.0			6.0
Backlog and other		19.7			19.2			19.7			19.0
Total		$	382.4		$	152.2		$	379.3		$	143.8

 

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Customer relationships, proprietary technology, license agreements, and backlog and other amortizable intangible assets have weighted average useful lives of approximately 10 years, 14 years, 8 years and 2 years, respectively, for an aggregate weighted average useful life of approximately 10 years at March 31, 2015.

 

Intangible assets are included in Intangibles and other long-term assets in the accompanying Condensed Consolidated Balance Sheets.  The amortization expense for the three months ended March 31, 2015 and 2014 was approximately $8.4 and $8.3, respectively.  As of March 31, 2015, amortization expense estimated for each of the next five fiscal years is approximately $33.3 in 2015, $33.2 in 2016, $32.8 in 2017, $28.6 in 2018 and $24.5 in 2019.

 

Note 12—Debt

 

The Company’s debt consists of the following:

 

		March 31, 2015						December 31, 2014
		Carrying Amount			Approximate Fair Value			Carrying Amount			Approximate Fair Value
$1,500.0 Revolving Credit Facility		$	—		$	—		$	—		$	—
$200.0 Credit Agreement		—			—			—			—
$1,500.0 Commercial Paper Program		753.0			753.0			671.0			671.0
1.55% Senior Notes due September 2017		374.7			375.8			374.7			373.0
2.55% Senior Notes due January 2019		749.1			762.1			749.1			754.9
3.125% Senior Notes due September 2021		374.7			382.9			374.7			375.3
4.00% Senior Notes due February 2022		499.1			529.6			499.1			524.5
Notes payable to foreign banks and other debt		8.0			8.0			5.3			5.3
Total debt		2,758.6			2,811.4			2,673.9			2,704.0
Less current portion		(1.6		)	(1.6		)	(1.6		)	(1.6		)
Total long-term debt		$	2,757.0		$	2,809.8		$	2,672.3		$	2,702.4

 

Credit Facilities and Commercial Paper Program

 

The Company has a $1,500.0 unsecured credit facility (the “Revolving Credit Facility”) with a maturity date of July 2018 and a $200.0 unsecured credit facility (the “Credit Agreement”) which is renewable annually.  Both of these facilities give the Company the ability to borrow at a spread over LIBOR.

 

The Company has a commercial paper program (the “Program”) pursuant to which it issues short-term unsecured commercial paper notes (“Commercial Paper”) in one or more private placements.  Amounts available under the Program are borrowed, repaid and re-borrowed from time to time.  The maturities of the Commercial Paper vary, but may not exceed 397 days from the date of issue.  The Commercial Paper is sold under customary terms in the commercial paper market and may be issued at a discount from par, or, alternatively, may be sold at par and bear varying interest rates on a fixed or floating basis.  The Program was rated A-2 by Standard & Poor’s and P-2 by Moody’s and is backstopped by the Revolving Credit Facility.  The maximum aggregate principal amount of the Commercial Paper outstanding under the Program at any time is $1,500.0.  The Commercial Paper is classified as long-term debt in the accompanying Condensed Consolidated Balance Sheets since the Company has the intent and ability to refinance the Commercial Paper on a long-term basis using the Revolving Credit Facility.  The carrying value of Commercial Paper borrowings approximated their fair value given that the Commercial Paper is actively traded.  As such, the Commercial Paper is classified as Level 1 in the fair value hierarchy (Note 13).  The average interest rate on the Commercial Paper as of March 31, 2015 was 0.63%.

 

Senior Notes

 

All of the Company’s outstanding senior notes, which are listed in the table above, are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on each series of the senior notes is payable semiannually. The Company may, at its option, redeem some or all of any series senior notes at any time by paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, and if redeemed prior to the date of maturity, a make-whole premium. Fair values of the senior notes are based on recent bid prices in an active market and are therefore classified as Level 1 in the fair value hierarchy (Note 13).

 

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Note 13—Fair Value Measurements

 

The Company follows the framework within the Fair Value Measurements and Disclosures topic of the Accounting Standards Codification, which requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. These requirements establish market or observable inputs as the preferred source of values. Assumptions based on hypothetical transactions are used in the absence of market inputs. The Company does not have any non-financial instruments accounted for at fair value on a recurring basis.

 

The valuation techniques required are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

 

Level 1                                Quoted prices for identical instruments in active markets.

 

Level 2                                Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3                                Significant inputs to the valuation model are unobservable.

 

The Company believes that the assets or liabilities subject to such standards with fair value disclosure requirements are short-term investments and derivative instruments. Substantially all of the Company’s short-term investments consist of certificates of deposit with original maturities of twelve months or less and as such, are considered as Level 1 in the fair value hierarchy as they are traded in active markets which have identical assets. The carrying amounts of these instruments, the majority of which are in non-U.S. bank accounts, approximate their fair value. The Company’s derivative instruments represent foreign exchange rate forward contracts, which are valued using bank quotations based on market observable inputs such as forward and spot rates and are therefore classified as Level 2 in the fair value hierarchy. The impact of the credit risk related to these financial assets is immaterial. The fair values of the Company’s financial and non-financial assets and liabilities subject to such standards at March 31, 2015 and December 31, 2014 are as follows:

 

		Fair Value Measurements at March 31, 2015
		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Short-term investments		$	381.2		$	381.2		$	—		$	—
Forward contracts		50.9			—			50.9			—
Total		$	432.1		$	381.2		$	50.9		$	—

 

		Fair Value Measurements at December 31, 2014
		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Short-term investments		$	360.7		$	360.7		$	—		$	—
Forward contracts		11.0			—			11.0			—
Total		$	371.7		$	360.7		$	11.0		$	—

 

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