March 22 -

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Summary analysis -- Amphenol Corp. -------------------------------- 22-Mar-2012

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CREDIT RATING: BBB/Stable/-- Country: United States

State/Province: Connecticut

Primary SIC: Electronic

connectors

Mult. CUSIP6: 032095

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Credit Rating History:

Local currency Foreign currency

23-Dec-2010 BBB/-- BBB/--

06-Jun-2005 BBB-/-- BBB-/--

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Rationale

The ratings on Stamford, Ct.-based Amphenol Corp. reflect the company's "satisfactory" business risk profile (based on Standard & Poor's Ratings Services' criteria) and relatively moderate financial policies and leverage. Limited portfolio diversity partly offsets these factors. Amphenol manufactures connectors, cable, and interconnect systems for electronics, cable TV, telecommunications, and other applications.

We characterize Amphenol's business profile as satisfactory, supported by a good track record of profitability and moderate revenue volatility and mitigated by a somewhat narrow portfolio. The company has long-standing positions across a diverse set of specialty end markets in electronics interconnector products, supplemented by a smaller position in the less profitable broadband cable market.

Amphenol is among the largest manufacturers in the fragmented industry of electronic interconnect products. The company focuses on more profitable, less commodity-like applications and product lines.

Sales remain broad-based across a number of end markets and geographies. Acquisitions have bolstered growth and Amphenol has demonstrated its capabilities in smooth acquisition integration in the interconnect area, particularly in improving operational execution and enhancing the profitability of the target. The company's largest end market is communications, about 60% of total sales. Approximately 7% of revenues come from sales to broadband customers and about 15% are to the military. While revenues have recovered from the late 2008-early 2009 industry downturn, they have been affected by continuing global fiscal and budgetary uncertainties. Revenue for fiscal 2011 was $3.9 billion, up 11% from 2010, although fourth-quarter revenues of $949 million were essentially unchanged from the prior-year levels and were down 8% from the prior quarter. For the full year 2012, we expect revenue growth in the low-single digits. Despite higher raw material costs and flood damage arising form Hurricane Irene affecting third- and fourth-quarter margins, EBITDA margins of approximately 22% are basically unchanged from the prior-year level and we expect them to stay at these levels over the coming year..

We view Amphenol's financial risk profile as "intermediate" (according to our criteria). When adjusted for capitalized operating leases, securitized accounts receivables, and unfunded pension and postretirement obligations, total debt to EBITDA was 1.7x at Dec. 31, 2011, compared with 1.2x in 2010. Credit measures are currently strong for the rating, providing some capacity for debt-financed acquisitions. We note that the company maintains a $1 billion credit facility with about $800 million of undrawn capacity. Despite the availability on the revolver, we expect Amphenol to continue with a balanced use of operating cash flow for acquisitions and an emphasis on maintaining moderate financial leverage. The company made two acquisitions for $303 million in the automotive area in 2011. We expect debt to EBITDA to remain at or below 2x over time, even if growth rates are somewhat below our expectations and/or margins weaken further.

Liquidity

Liquidity is "adequate" (based on our criteria). Cash balances as of Dec. 31, 2011, were $649 million. In addition to cash on hand, cash sources include over $500 million funds from operations. Uses include capital expenditures of about $100 million and a very modest dividend. In addition, the company has repurchased over $730 million of stock since January 2011 and has an additional 5.5 million shares available for repurchase under its existing program.

Other relevant aspects of Amphenol's liquidity, in our view, are as follows:

-- We expect coverage of uses to exceed 1.5x for the next 12 months, and net sources to be positive in the near term, even with a 30% decline in expected EBITDA.

-- Amphenol has ample headroom under its total leverage covenant--and is likely to retain headroom, even with a 30% EBITDA decline.

Outlook

Our rating outlook on Amphenol is stable. Given its current business profile and our expectation that it will continue its acquisitive growth strategy, a possible upgrade is limited in the near term. Deterioration in operating profitability, more aggressive acquisition practices, or financial policies leading to sustained leverage exceeding 2.5x would likely lead to a lower rating.

Related Criteria And Research

-- U.S. Technology Companies' Liquidity Is Higher, For Now, Jan. 18, 2012

-- Industry Economic Outlook: Slow Global IT Spending Growth Is Likely To Continue Into 2012, Jan. 12, 2012

-- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, Dec. 22, 2011

-- Reshuffling The Debt: Global High-Tech M&A Activity Accelerates, Oct. 13, 2011

-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011

-- Key Credit Factors: Methodology And Assumptions On Risks In The Global High Technology Industry, Oct. 15, 2009

-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

• A Permanent Economic Emergency