Q4 2010 Earnings Call
January 19, 2011 1:00 pm ET
Diana Reardon - Chief Financial Officer, Principal Accounting Officer and Senior Vice President
R. Norwitt - Chief Executive Officer, President and Director
Matthew Sheerin - Stifel, Nicolaus & Co., Inc.
Ryan Jones - RBC Capital Markets
Wamsi Mohan - BofA Merrill Lynch
Brian White - Ticonderoga Securities LLC
Craig Hettenbach - Goldman Sachs
Jim Suva - Citigroup Inc
Amitabh Passi - UBS Investment Bank
Steven Fox - Credit Agricole Securities (USA) Inc.
Steven O'Brien - JP Morgan Chase & Co
William Stein - Crédit Suisse AG
Previous Statements by APH
» Amphenol Corporation CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Amphenol Corporation Q2 2010 Earnings Call Transcript
» Amphenol Corporation Q1 2010 Earnings Call Transcript
Thank you. Good afternoon. My name is Diana Reardon, and I'm Amphenol's CFO. I'm here together with Adam Norwitt, our CEO, and we'd like to welcome you all to our fourth quarter earnings results conference call. Fourth quarter results were released this morning. I will provide some financial commentary on the quarter, and Adam will give an overview of the business and current trends. We'll then have a question-and-answer session.
The company had a record fourth quarter, achieving strong growth in both sales and earnings per share and exceeding the high end of the company's guidance. Sales were $950 million, up slightly from Q3 2010 and up 25% in U.S. dollars and local currencies over the fourth quarter of 2009. From an organic standpoint, excluding both acquisitions and currency, sales in Q4 2010 were up 21% from last year.
Breaking down sales into our two major components, our Cable business, which comprise 6% of our sales, was down 7% from last year and 12% from last quarter. The sales decline relate primarily to lower spending in North America and broadband markets. The Interconnect business, which comprise 94% of our sales, was up 28% from last year and 1%, sequentially. Adam will comment further on trends by market in a few minutes.
Operating income for the quarter was $191 million compared to $138 million last year. Operating margin was 20.1% compared to 18.3% last year. Operating income is net of stock option expense of approximately $6.8 million in Q4 2010 compared to $5 million in Q4 2009, 0.7% of sales in both periods.
From a segment standpoint in the Cable segment, margins were 12.3%, down from 15.5% last year. The margin decline relates to higher relative material costs, the impact of market price reductions and lower volumes. In the Interconnect business, margins were 22.4% compared to 20.6% last year. The improvement in margin reflects the benefits of higher volume levels combined with the proactive and aggressive management of all elements of cost.
Overall, we're very pleased with the company's record operating margin achievement of 20.1%. This represents a conversion margin on incremental sales over the fourth quarter of 2009 of approximately 27%. This is excellent performance in any environment, but particularly in the face of increasing global cost pressures. We continue to believe that the company's entrepreneurial operating structure and culture of cost control will allow us to react in a fast and flexible manner and achieve strong profitability going forward.
Interest expense for the quarter was $10.2 million compared to $9.5 million last year. The increase over the prior year relates primarily to the inclusion in interest expense of fees on the company's receivable securitization program in accordance with the adoption of new accounting rules effective January 1. In 2009, these fees, which were approximately $400,000, were included in other expense.
In the fourth quarter, the company had an effective tax rate of 27.2% compared to a rate of 27.5% in the fourth quarter of 2009. we currently expect a rate of approximately 27.5% in 2011. Net income in the quarter was approximately 14% of sales, a very strong performance. Diluted earnings per share for the fourth quarter was $0.74 and grew $0.48 over the prior year quarter on an as reported basis and 42% after adjusting the prior year earnings per share for one-time item. This represents an EPS growth rate of approximately 1.7x sales growth, demonstrating the company's significant operating leverage.
Orders for the quarter were $948 million, up 24% from last year, resulting in a book-to-bill ratio of approximately 1:1. The company continued the strong focus on balance sheet management in the quarter. Accounts receivable was $719 million, down 1% from the end of Q3. Days sales outstanding were at the high end of the company's normal range of 68 days at the end of 2010, up from 64 days at the end of 2009. In addition, payable days increased from 51 days at the end of 2009 to 54 days at the end of 2010.
Inventory in the quarter was $549 million, up about 2% from the end of Q3. From a day's perspective, inventory was at 77 days at the end of 2010, down from 80 days at the end of 2009. This is a good performance for the company from a historical perspective, although we continue to focus on improving inventory performance.
The company continues to be an excellent generator of cash. Cash flow from operations was $161 million in Q4, over 120% of net income. Cash from operations, along with proceeds and related tax benefits from option exercises of $36 million, were used primarily for capital expenditures of $36 million, acquisition payments relating to previous acquisitions of $15 million and a reduction in borrowings under the company's credit receivable facility of $104 million.
In addition, the cash and short-term investments increased $29 million to $624 million at the end of the year. Total debt was $800 million and net debt approximately $176 million at year end. In August, as previously reported, the company refinanced its senior credit facility. The new $1 billion facility matures in August of 2014. And at the end of the year, the company had availability under that facility of $896 million.
The company also has a $100 million receivable securitization facility that expires in 2013. In accordance with previous accounting rules, this facility was accounted for our balance sheet as a sale of receivable. Effective January 1, those rules were changed and the facility was brought on balance sheet, reducing the company's operating cash flow in Q1 of 2010 and for the year by $82 million. At December 31, 2010, borrowings under that facility were $92 million and are reflected as long-term debt. At December 31, '09, approximately $82 million of receivables were sold under this facility and were excluded from the balance sheet.