Belden Inc 10-Q for FY2020 Q3
Belden Inc. (BDC)
10-Q
2020-11-02
For: 2020-09-27
View Original
Added on
April 08, 2026
About this 10-Q
Belden Inc filed this 10-Q on November 2, 2020, covering the quarter ended September 27, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 27, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $475.84M
- down 10.7% from $533.1M a year earlier
- Net income
- $17M
- compared with a net loss of $297.01M a year earlier
- Diluted EPS
- $0.38
- compared with -$6.70 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM 10-Q
_________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2020
Commission File No. 001-12561
_________________________________________________
(Exact name of registrant as specified in its charter)
_________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices)
(314 ) 854-8000
Registrant’s telephone number, including area code
_________________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act 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 ☑ No ☐.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols | Name of each exchange on which registered | ||||||||||||
As of October 28, 2020, the Registrant had 44,609,972 outstanding shares of common stock.
-1-
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BELDEN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 27, 2020 | December 31, 2019 | ||||||||||
| (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Current assets of discontinued operations | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, less accumulated depreciation | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, less accumulated amortization | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-lived assets | |||||||||||
| $ | $ | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current liabilities of discontinued operations | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Postretirement benefits | |||||||||||
| Deferred income taxes | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Treasury stock | ( | ( | |||||||||
| Total Belden stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total stockholders’ equity | |||||||||||
| $ | $ | ||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
-1-
BELDEN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||||||||||||||||
| (In thousands, except per share data) | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | ( | ( | ( | ( | |||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
| Research and development expenses | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of intangibles | ( | ( | ( | ( | |||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Non-operating pension benefit | |||||||||||||||||||||||
| Income from continuing operations before taxes | |||||||||||||||||||||||
| Income tax expense | ( | ( | ( | ( | |||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Gain on disposal of discontinued operations, net of tax | |||||||||||||||||||||||
| Net income (loss) | ( | ( | ( | ||||||||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | ( | ||||||||||||||||||||||
| Net income (loss) attributable to Belden | ( | ( | ( | ||||||||||||||||||||
| Less: Preferred stock dividends | |||||||||||||||||||||||
| Net income (loss) attributable to Belden common stockholders | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Weighted average number of common shares and equivalents: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Basic income (loss) per share attributable to Belden common stockholders: | |||||||||||||||||||||||
| Continuing operations attributable to Belden common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations attributable to Belden common stockholders | ( | ( | ( | ( | |||||||||||||||||||
| Disposal of discontinued operations attributable to Belden common stockholders | |||||||||||||||||||||||
| Net income (loss) per share attributable to Belden common stockholders | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Diluted income (loss) per share attributable to Belden common stockholders: | |||||||||||||||||||||||
| Continuing operations attributable to Belden common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Discontinued operations attributable to Belden common stockholders | ( | ( | ( | ( | |||||||||||||||||||
| Disposal of discontinued operations attributable to Belden common stockholders | |||||||||||||||||||||||
| Net income (loss) per share attributable to Belden common stockholders | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Comprehensive loss attributable to Belden | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Common stock dividends declared per share | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
-2-
BELDEN INC.
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
| Nine Months Ended | |||||||||||
| September 27, 2020 | September 29, 2019 | ||||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Asset impairment of discontinued operations | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Gain on disposal of business | ( | ||||||||||
| Changes in operating assets and liabilities, net of the effects of currency exchange rate changes, acquired businesses and disposals: | |||||||||||
| Receivables | |||||||||||
| Inventories | ( | ||||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued liabilities | ( | ( | |||||||||
| Income taxes | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Other liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Cash from business acquisitions, net of cash acquired | ( | ||||||||||
| Proceeds from disposal of tangible assets | |||||||||||
| Proceeds from disposal of business, net of cash sold | |||||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings on revolver | |||||||||||
| Payments under borrowing arrangements | ( | ||||||||||
| Payments under share repurchase program | ( | ( | |||||||||
| Payment of earnout consideration | ( | ||||||||||
| Cash dividends paid | ( | ( | |||||||||
| Withholding tax payments for share-based payment awards | ( | ( | |||||||||
| Other | ( | ( | |||||||||
| Net cash used for financing activities | ( | ( | |||||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
For all periods presented, the Condensed Consolidated Cash Flow Statement includes the results of the Grass Valley disposal group up to the disposal date, July 2, 2020.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
-3-
BELDEN INC.
CONDENSED CONSOLIDATED STOCKHOLDERS’ EQUITY STATEMENTS
(Unaudited)
| Belden Inc. Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional | Accumulated Other | Non-controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Treasury Stock | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Shares | Amount | Income (Loss) | Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect of change in accounting principle | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, net of tax withholding forfeitures | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of restricted stock units into common stock, net of tax withholding forfeitures | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchase program | — | — | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 29, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of restricted stock units into common stock, net of tax withholding forfeitures | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchase program | — | — | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 28, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement Savings Plan stock contributions | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of restricted stock units into common stock, net of tax withholding forfeitures | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 27, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
-4-
| Belden Inc. Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mandatory Convertible | Additional | Accumulated Other | Non-controlling | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Retained | Treasury Stock | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Shares | Amount | Income (Loss) | Interests | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, net of tax withholding forfeitures | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of restricted stock units into common stock, net of tax withholding forfeitures | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends ($ | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of business with noncontrolling interest | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, net of tax witholding forfeitures | — | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of restricted stock units into common stock, net of tax witholding forfeitures | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchase program | — | — | — | — | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends ($ | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ( | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to acquisition of business with noncontrolling interest | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, net of tax witholding forfeitures | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of restricted stock units into common stock, net of tax witholding forfeitures | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share repurchase program | — | — | — | — | — | — | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock conversion | ( | ( | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends ($ | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 29, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
-5-
BELDEN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include Belden Inc. and all of its subsidiaries (the Company, us, we, or our). We eliminate all significant affiliate accounts and transactions in consolidation.
The accompanying Condensed Consolidated Financial Statements presented as of any date other than December 31, 2019:
•Are prepared from the books and records without audit, and
•Are prepared in accordance with the instructions for Form 10-Q and do not include all of the information required by accounting principles generally accepted in the United States for complete statements, but
•Include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial statements.
Business Description
We are a global supplier of specialty networking solutions built around two global business platforms - Enterprise Solutions and Industrial Solutions. Our comprehensive portfolio of solutions enables customers to transmit and secure data, sound, and video for mission critical applications across complex enterprise and industrial environments.
Fair Value Measurement
Accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources or reflect our own assumptions of market participant valuation. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
•Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets, or financial instruments for which significant inputs are observable, either directly or indirectly; and
•Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
As of and during the three and nine months ended September 27, 2020 and September 29, 2019, we utilized Level 1 inputs to determine the fair value of cash equivalents, and we utilized Level 2 and Level 3 inputs to determine the fair value of net assets acquired in business combinations (see Note 3) and for impairment testing (see Notes 4 and 10). We did not have any transfers between Level 1 and Level 2 fair value measurements during the nine months ended September 27, 2020 and September 29, 2019.
-6-
Cash and Cash Equivalents
We classify cash on hand and deposits in banks, including commercial paper, money market accounts, and other investments with an original maturity of three months or less, that we hold from time to time, as cash and cash equivalents. We periodically have cash equivalents consisting of short-term money market funds and other investments. As of September 27, 2020, we did not have any such cash equivalents on hand. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations. We do not enter into investments for trading or speculative purposes.
During the nine months ended September 27, 2020, we paid the sellers of Snell Advanced Media (SAM) the full earnout consideration of $31.4 million in cash in accordance with the purchase agreement. SAM was acquired on February 8, 2018 and is included in the Grass Valley disposal group.
Due to the initial uncertainties arising from the COVID-19 pandemic and out of an abundance of caution, we borrowed $190.0 million on our Revolver at the beginning of the second quarter. As a result of improving and sufficient cash flow and liquidity throughout the year, we subsequently repaid the entire $190.0 million during the nine months ended September 27, 2020; $90.0 million of which was during the three months ended September 27, 2020. See Note 12.
Contingent Liabilities
We have established liabilities for environmental and legal contingencies that are probable of occurrence and reasonably estimable, the amounts of which are currently not material. We accrue environmental remediation costs based on estimates of known environmental remediation exposures developed in consultation with our environmental consultants and legal counsel. We are, from time to time, subject to routine litigation incidental to our business. These lawsuits primarily involve claims for damages arising out of the use of our products, allegations of patent or trademark infringement, and litigation and administrative proceedings involving employment matters and commercial disputes. Based on facts currently available, we believe the disposition of the claims that are pending or asserted will not have a material adverse effect on our financial position, results of operations, or cash flow.
As of September 27, 2020, we were party to standby letters of credit, bank guaranties, and surety bonds totaling $5.9 million, $4.1 million, and $3.3 million, respectively.
Revenue Recognition
We recognize revenue consistent with the principles as outlined in the following five step model: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) each performance obligation is satisfied. See Note 2.
Subsequent Events
We evaluated subsequent events after the balance sheet date through the financial statement issuance date for appropriate accounting and disclosure.
Noncontrolling Interest
We have a 51 % ownership percentage in a joint venture with Shanghai Hi-Tech Control System Co, Ltd (Hite). The purpose of the joint venture is to develop and provide certain Industrial Solutions products and integrated solutions to customers in China. Belden and Hite are committed to fund $1.53 million and $1.47 million, respectively, to the joint venture in the future. The joint venture is determined to not have sufficient equity at risk; therefore, it is considered a variable interest entity. We have determined that Belden is the primary beneficiary of the joint venture, due to both our ownership percentage and our control over the activities of the joint venture that most significantly impact its economic performance based on the terms of the joint venture agreement with Hite. Because Belden is the primary beneficiary of the joint venture, we have consolidated the joint venture in our financial statements. The results of the joint venture attributable to Hite’s ownership are presented as net income (loss) attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations. The joint venture is not material to our Condensed Consolidated financial statements as of or for the periods ended September 27, 2020 and September 29, 2019.
-7-
Note 2: Revenues
Revenues are recognized when control of the promised goods or services is transferred to our customers and in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Taxes collected from customers and remitted to governmental authorities are not included in our revenues.
The following tables present our revenues disaggregated by major product category.
| Broadband & 5G | Cyber-security | Industrial Automation | Smart Buildings | Total Revenues | ||||||||||||||||||||||||||||
| Three Months Ended September 27, 2020 | (In thousands) | |||||||||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Three Months Ended September 29, 2019 | ||||||||||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine Months Ended September 27, 2020 | ||||||||||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine Months Ended September 29, 2019 | ||||||||||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
-8-
The following tables present our revenues disaggregated by geography, based on the location of the customer purchasing the product.
| Americas | EMEA | APAC | Total Revenues | |||||||||||||||||||||||
| Three Months Ended September 27, 2020 | (In thousands) | |||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended September 29, 2019 | ||||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Nine Months Ended September 27, 2020 | ||||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| Nine Months Ended September 29, 2019 | ||||||||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
We generate revenues primarily by selling products that provide secure and reliable transmission of data, sound, and video for mission critical applications. We also generate revenues from providing support and professional services. We sell our products to distributors, end-users, installers, and directly to original equipment manufacturers. At times, we enter into arrangements that involve the delivery of multiple performance obligations. For these arrangements, revenue is allocated to each performance obligation based on its relative selling price and recognized when or as each performance obligation is satisfied. Most of our performance obligations related to the sale of products are satisfied at a point in time when control of the product is transferred based on the shipping terms of the arrangement. Generally, we determine relative selling price using the prices charged to customers on a standalone basis.
The amount of consideration we receive and revenue we recognize varies due to rebates, returns, and price adjustments. We estimate the expected rebates, returns, and price adjustments based on an analysis of historical experience, anticipated sales demand, and trends in product pricing. We adjust our estimate of revenue at the earlier of when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed. Adjustments to revenue for performance obligations satisfied in prior periods were not significant during the three and nine months ended September 27, 2020 and September 29, 2019.
The following table presents estimated and accrued variable consideration:
| September 27, 2020 | September 29, 2019 | |||||||||||||
| (in thousands) | ||||||||||||||
| Accrued rebates | $ | $ | ||||||||||||
| Accrued returns | ||||||||||||||
| Price adjustments recognized against gross accounts receivable | ||||||||||||||
Depending on the terms of an arrangement, we may defer the recognition of some or all of the consideration received because we have to satisfy a future obligation. Consideration allocated to support services under a support and maintenance contract is typically paid in advance and recognized ratably over the term of the service. Consideration allocated to professional services is typically recognized when or as the services are performed depending on the terms of the arrangement. As of September 27, 2020, total deferred revenue was $70.2 million, and of this amount, $46.1 million is expected to be recognized within the next twelve months, and the remaining $24.1 million is long-term and is expected to be recognized over a period greater than twelve months.
-9-
The following table presents deferred revenue activity:
| 2020 | 2019 | |||||||||||||
| (In thousands) | ||||||||||||||
| Beginning balance | $ | $ | ||||||||||||
| New deferrals | ||||||||||||||
| Revenue recognized | ( | ( | ||||||||||||
| Balance at March 29, 2020 | ||||||||||||||
| New deferrals | ||||||||||||||
| Revenue recognized | ( | ( | ||||||||||||
| Balance at June 28, 2020 | ||||||||||||||
| New deferrals | ||||||||||||||
| Revenue recognized | ( | ( | ||||||||||||
| Balance at September 27, 2020 | $ | $ | ||||||||||||
We expense sales commissions as incurred when the duration of the related revenue arrangement is one year or less. We capitalize sales commissions in other current and long-lived assets on our balance sheet when the original duration of the related revenue arrangement is longer than one year, and we amortize it over the related revenue arrangement period.
Total capitalized sales commissions was $4.6 million as of September 27, 2020 and $3.0 million as of September 29, 2019. The following table presents sales commissions that are recorded within selling, general and administrative expenses:
| Three Months ended | Nine Months ended | |||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Sales commissions | $ | $ | $ | $ | ||||||||||||||||||||||
Note 3: Acquisitions
Special Product Company
On December 6, 2019, we purchased substantially all the assets, and assumed certain specified liabilities of Special Product Company (SPC) for a preliminary purchase price of $22.5 million. SPC, based in Kansas City, Kansas, is a leading designer, manufacturer, and seller of outdoor cabinet products for optical fiber cable installations. The results of SPC have been included in our Condensed Consolidated Financial Statements from December 6, 2019, and are reported within the Enterprise Solutions segment. The acquisition of SPC was not material to our financial position or results of operations.
Opterna International Corp.
We acquired 100 % of the shares of Opterna International Corp. (Opterna) on April 15, 2019 for a purchase price, net of cash acquired, of $51.7 million. Of the $51.7 million purchase price, $45.9 million was paid with cash on hand. The acquisition included a potential earnout, which is based upon future Opterna financial targets through April 15, 2021. The maximum earnout consideration is $25.0 million, but based upon a third party valuation specialist using certain assumptions in a discounted cash flow model, the estimated fair value of the earnout included in the purchase price is $5.8 million. Opterna is an international fiber optics solutions business based in Sterling, Virginia, which designs and manufactures a range of complementary fiber connectivity, cabinet, and enclosure products used in optical networks. The results of Opterna have been included in our Condensed Consolidated Financial Statements from April 15, 2019, and are reported within the Enterprise Solutions segment. Certain subsidiaries of Opterna include noncontrolling interests. Because Opterna has a controlling financial interest in these subsidiaries, they are consolidated into our financial statements. The results that are attributable to the noncontrolling interest holders are presented as net income attributable to noncontrolling interests in the Condensed Consolidated Statements of Operations. An immaterial amount of Opterna's annual revenues are generated from transactions with the noncontrolling interests. On October 25, 2019, we purchased the noncontrolling interest of one subsidiary for a purchase price of $0.8 million; of which $0.4 million was paid at closing and the remaining $0.4 million will be paid in 2021.
-10-
The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed as of April 15, 2019 (in thousands):
| Receivables | $ | |||||||
| Inventory | ||||||||
| Prepaid and other current assets | ||||||||
| Property, plant, and equipment | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Deferred income taxes | ||||||||
| Operating lease right-to-use assets | ||||||||
| Other long-lived assets | ||||||||
| Total assets acquired | $ | |||||||
| Accounts payable | $ | |||||||
| Accrued liabilities | ||||||||
| Long-term deferred tax liability | ||||||||
| Long-term operating lease liability | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities assumed | $ | |||||||
| Net assets | ||||||||
| Noncontrolling interests | ||||||||
| Net assets attributable to Belden | $ | |||||||
We did not record any material measurement-period adjustments in the nine months ended September 27, 2020.
A single estimate of fair value results from a complex series of judgments about future events and uncertainties and relies heavily on estimates and assumptions. The judgments we have used in estimating the fair values assigned to each class of acquired assets and assumed liabilities could materially affect the results of our operations.
The fair value of acquired receivables is $5.3 million, which is equivalent to its gross contractual amount.
For purposes of the above allocation, we based our estimate of the fair values for the acquired inventory, intangible assets, and noncontrolling interests on valuation studies performed by a third party valuation firm. We have estimated a fair value adjustment for inventories based on the estimated selling price of the work-in-process and finished goods acquired at the closing date less the sum of the costs to complete the work-in-process, the costs of disposal, and a reasonable profit allowance for our post acquisition selling efforts. We used various valuation methods including discounted cash flows, lost income, excess earnings, and relief from royalty to estimate the fair value of the identifiable intangible assets (Level 3 valuation). Our estimate of the fair values for the noncontrolling interests were based on the comparable EBITDA multiple valuation technique (Level 3 valuation).
-11-
Goodwill and other intangible assets reflected above were determined to meet the criteria for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expansion of product offerings in the optical fiber market. Our tax basis in the acquired goodwill is zero . The intangible assets related to the acquisition consisted of the following:
| Fair Value | Amortization Period | |||||||||||||
| (In thousands) | (In years) | |||||||||||||
| Intangible assets subject to amortization: | ||||||||||||||
Developed technologies | $ | |||||||||||||
Customer relationships | ||||||||||||||
Sales backlog | ||||||||||||||
Trademarks | ||||||||||||||
Total intangible assets subject to amortization | $ | |||||||||||||
| Intangible assets not subject to amortization: | ||||||||||||||
Goodwill | $ | n/a | ||||||||||||
Total intangible assets not subject to amortization | $ | |||||||||||||
Total intangible assets | $ | |||||||||||||
| Weighted average amortization period | ||||||||||||||
The amortizable intangible assets reflected in the table above were determined by us to have finite lives. The useful life for the developed technology intangible asset was based on the estimated time that the technology provides us with a competitive advantage and thus approximates the period and pattern of consumption of the intangible asset. The useful life for the customer relationship intangible asset was based on our forecasts of estimated sales from recurring customers. The useful life of the backlog intangible asset was based on our estimate of when the ordered items would ship and control of the items transfers. The useful life for the trademarks was based on the period of time we expect to continue to go to market using the trademarks.
The following table illustrates the unaudited pro forma effect on operating results as if the Opterna acquisition had been completed as of January 1, 2018.
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 29, 2019 | September 29, 2019 | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Revenues | $ | $ | ||||||||||||
| Net income from continuing operations attributable to Belden common stockholders | ||||||||||||||
| Diluted income from continuing operations per share attributable to Belden common stockholders | $ | $ | ||||||||||||
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would have been had we completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.
FutureLink
-12-
Note 4: Discontinued Operations
We classify assets and liabilities as held for sale (disposal group) when management, having the authority to approve the action, commits to a plan to sell the disposal group, the sale is probable within one year, and the disposal group is available for immediate sale in its present condition. We also consider whether an active program to locate a buyer has been initiated, whether the disposal group is marketed actively for sale at a price that is reasonable in relation to its current fair value, and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
During the fourth quarter of 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the assets and liabilities of this business as held for sale. Furthermore, we determined a divestiture of Grass Valley represented a strategic shift that is expected to have a major impact on our operations and financial results. As a result, the Grass Valley disposal group, which was included in our Enterprise Solutions segment, is reported within discontinued operations. The Grass Valley disposal group excludes certain Grass Valley pension liabilities that we retained. We also ceased depreciating and amortizing the assets of the disposal group once they met the held for sale criteria during the fourth quarter of 2019.
We wrote down the carrying value of Grass Valley and recognized asset impairments totaling $113.0 million and $342.1 million in the nine months ended September 27, 2020 and September 29, 2019, respectively. We determined the estimated fair values of the assets and of the reporting unit by calculating the present values of their estimated future cash flows.
We completed the sale of Grass Valley to Black Dragon Capital on July 2, 2020 and recognized a gain of $2.7 million, net of a $2.0 million income tax benefit. The terms of the sale included gross cash consideration of $120.0 million, or approximately $59.5 million net of cash delivered with the business and certain preliminary working capital adjustments. The sale also included deferred consideration consisting of a $175.0 million seller’s note that matures in 2025, up to $88 million in PIK (payment-in-kind) interest on the seller’s note, and $178.0 million in potential earnout payments. Based upon a third party valuation specialist using certain assumptions in a Monte Carlo analysis, the estimated fair value of the seller’s note is $34.9 million, which we recorded in Other Long-Lived Assets. We accounted for the earnout under a loss recovery approach and did not record an asset as of the disposal date. Any subsequent recognition of an earnout will be based on the gain contingency guidance.
As part of the transaction, we also invested $3.0 million for a 9 % equity interest in Grass Valley with the right to put the equity back to Black Dragon Capital at any time on or before October 31, 2020. On October 23, 2020, we notified Black Dragon Capital that we are exercising our right to put the equity back to them. We expect to finalize the sale of our equity interest during the fourth quarter of 2020. We deconsolidated Grass Valley as of July 2, 2020 and are accounting for our equity interest under the cost method. Our equity interest is recorded in Other Long-Lived Assets.
The seller’s note accrues PIK interest at an annual rate of 8.5 %. During the three months ended September 27, 2020, the seller’s note accrued interest of $3.6 million, which we reserved for based on our expected loss allowance methodology.
We are performing certain services for Grass Valley under a transition services agreement. During the three months ended September 27, 2020, the amount of transition services totaled $1.0 million, which we expect to collect in 2021.
-13-
The following table summarizes the operating results of the disposal group up to the July 2, 2020 disposal date for the three and nine months ended September 27, 2020 and September 29, 2019, respectively:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of sales | ( | ( | ( | ( | ||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ( | ( | ( | ||||||||||||||||||||||
| Research and development expenses | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of intangibles | ( | ( | ||||||||||||||||||||||||
| Asset impairment of discontinued operations | ( | ( | ( | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Non-operating pension benefit (cost) | ( | ( | ( | |||||||||||||||||||||||
| Loss before taxes | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
The disposal group had capital expenditures of approximately $0.3 million and $16.7 million during the three and nine months ended September 27, 2020, respectively; and $8.3 million and $22.8 million during the three and nine months ended September 29, 2019, respectively.
The disposal group recognized credits to stock-based compensation of $0.0 million and $0.9 million during the three and nine months ended September 27, 2020, respectively. The disposal group incurred stock based compensation expense of $0.2 million and $0.8 million during the three and nine months ended September 29, 2019, respectively.
The disposal group did not have any significant non-cash charges for investing activities during the three and nine months ended September 27, 2020 or September 29, 2019.
-14-
The following table provides the major classes of assets and liabilities of the disposal group as of December 31, 2019:
| December 31, 2019 | ||||||||
| (In thousands) | ||||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | |||||||
| Receivables, net | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Plant, property, and equipment, less accumulated depreciation | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, less accumulated depreciation | ||||||||
| Deferred income taxes | ||||||||
| Other long-lived assets | ||||||||
| Impairment of disposal group | ( | |||||||
| Total Assets of discontinued operations | $ | |||||||
| Liabilities: | ||||||||
| Accounts payable | $ | |||||||
| Accrued liabilities | ||||||||
| Postretirement benefits | ||||||||
| Deferred income taxes | ||||||||
| Long-term operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total Liabilities of discontinued operations | $ | |||||||
The disposal group also had $42.3 million of accumulated other comprehensive losses as of December 31, 2019.
Note 5: Reportable Segments
We are organized around two global business platforms: Enterprise Solutions and Industrial Solutions. Each of the global business platforms represents a reportable segment.
Effective January 1, 2020, we transferred our West Penn Wire business and multi-conductor product lines from the Enterprise Solutions segment to the Industrial Solutions segment as a result of a shift in responsibilities among the segments. We have recast the prior period segment information to conform to the change in the composition of reportable segments.
The key measures of segment profit or loss are Segment Revenues and Segment EBITDA. Segment Revenues represent non-affiliate revenues and include revenues that would have otherwise been recorded by acquired businesses as independent entities but were not recognized in our Condensed Consolidated Statements of Operations and Comprehensive Income due to the effects of purchase accounting and the associated write-down of acquired deferred revenue to fair value. Segment EBITDA excludes certain items, including depreciation expense; amortization of intangibles; asset impairment; severance, restructuring, and acquisition integration costs; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value; and other costs. We allocate corporate expenses to the segments for purposes of measuring Segment EBITDA. Corporate expenses are allocated on the basis of each segment’s relative EBITDA prior to the allocation.
-15-
| Enterprise Solutions | Industrial Solutions | Total Segments | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| As of and for the three months ended September 27, 2020 | ||||||||||||||||||||
| Segment revenues | $ | $ | $ | |||||||||||||||||
| Affiliate revenues | ||||||||||||||||||||
| Segment EBITDA | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Amortization of intangibles | ||||||||||||||||||||
| Amortization of software development intangible assets | ||||||||||||||||||||
| Severance, restructuring, and acquisition integration costs | ||||||||||||||||||||
| Segment assets | ||||||||||||||||||||
| As of and for the three months ended September 29, 2019 | ||||||||||||||||||||
| Segment revenues | $ | $ | $ | |||||||||||||||||
| Affiliate revenues | ||||||||||||||||||||
| Segment EBITDA | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Amortization of intangibles | ||||||||||||||||||||
| Amortization of software development intangible assets | ||||||||||||||||||||
| Severance, restructuring, and acquisition integration costs | ||||||||||||||||||||
| Purchase accounting effects of acquisitions | ( | ( | ||||||||||||||||||
| Segment assets | ||||||||||||||||||||
| As of and for the nine months ended September 27, 2020 | ||||||||||||||||||||
| Segment revenues | $ | $ | $ | |||||||||||||||||
| Affiliate revenues | ||||||||||||||||||||
| Segment EBITDA | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Amortization of intangibles | ||||||||||||||||||||
| Amortization of software development intangible assets | ||||||||||||||||||||
| Severance, restructuring, and acquisition integration costs | ||||||||||||||||||||
| Purchase accounting effects of acquisitions | ||||||||||||||||||||
| Segment assets | ||||||||||||||||||||
| As of and for the nine months ended September 29, 2019 | ||||||||||||||||||||
| Segment revenues | $ | $ | $ | |||||||||||||||||
| Affiliate revenues | ||||||||||||||||||||
| Segment EBITDA | ||||||||||||||||||||
| Depreciation expense | ||||||||||||||||||||
| Amortization of intangibles | ||||||||||||||||||||
| Amortization of software development intangible assets | ||||||||||||||||||||
| Severance, restructuring, and acquisition integration costs | ||||||||||||||||||||
| Purchase accounting effects of acquisitions | ||||||||||||||||||||
| Segment assets | ||||||||||||||||||||
-16-
The following table is a reconciliation of the total of the reportable segments’ Revenues and EBITDA to consolidated revenues and consolidated income from continuing operations before taxes, respectively.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Total Segment and Consolidated Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Total Segment EBITDA | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of intangibles | ( | ( | ( | ( | |||||||||||||||||||
| Depreciation expense | ( | ( | ( | ( | |||||||||||||||||||
| Severance, restructuring, and acquisition integration costs (1) | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of software development intangible assets | ( | ( | ( | ( | |||||||||||||||||||
| Purchase accounting effects related to acquisitions (2) | ( | ( | |||||||||||||||||||||
| Eliminations | ( | ( | ( | ( | |||||||||||||||||||
| Consolidated operating income | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Total non-operating pension benefit | |||||||||||||||||||||||
| Consolidated income from continuing operations before taxes | $ | $ | $ | $ | |||||||||||||||||||
(1) See Note 11, Severance, Restructuring, and Acquisition Integration Activities, for details.
Note 6: Income (loss) per Share
The following table presents the basis for the income (loss) per share computations:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | ( | ||||||||||||||||||||||
| Less: Preferred stock dividends | |||||||||||||||||||||||
| Income from continuing operations attributable to Belden common stockholders | |||||||||||||||||||||||
| Add: Loss from discontinued operations, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Add: Gain on disposal of discontinued operations, net of tax | |||||||||||||||||||||||
| Net income (loss) attributable to Belden common stockholders | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding, basic | |||||||||||||||||||||||
| Effect of dilutive common stock equivalents | |||||||||||||||||||||||
| Weighted average shares outstanding, diluted | |||||||||||||||||||||||
-17-
For the three and nine months ended September 27, 2020, diluted weighted average shares outstanding exclude outstanding equity awards of 1.6 million and 1.5 million, respectively, which are anti-dilutive. In addition, for both the three and nine months ended September 27, 2020, diluted weighted average shares outstanding do not include outstanding equity awards of 0.4
For the three and nine months ended September 29, 2019, diluted weighted average shares outstanding exclude outstanding equity awards of 1.4 million and 1.2 million, respectively, which are anti-dilutive. In addition, for both the three and nine months ended September 29, 2019, diluted weighted average shares outstanding do not include outstanding equity awards of 0.3 1.1 million and 4.9 million common shares, because deducting the preferred stock dividends from net income was more dilutive.
For purposes of calculating basic earnings per share, unvested restricted stock units are not included in the calculation of basic weighted average shares outstanding until all necessary conditions have been satisfied and issuance of the shares underlying the restricted stock units is no longer contingent. Necessary conditions are not satisfied until the vesting date, at which time holders of our restricted stock units receive shares of our common stock.
For purposes of calculating diluted earnings per share, unvested restricted stock units are included to the extent that they are dilutive. In determining whether unvested restricted stock units are dilutive, each issuance of restricted stock units is considered separately.
Once a restricted stock unit has vested, it is included in the calculation of both basic and diluted weighted average shares outstanding.
Note 7: Credit Losses
Effective January 1, 2020, we adopted , Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments prospectively. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. Upon adoption, we recorded a noncash cumulative effect adjustment to retained earnings of $2.9 million. Of this amount, $1.0 million related to our continuing operations and $1.9 million related to our discontinued operations.
We are exposed to credit losses primarily through sales of products and services. Our expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Our monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible.
Estimates are used to determine the allowance, which is based upon an assessment of anticipated payments as well as other historical, current and future information that is reasonably available. The following table presents the activity in the allowance for doubtful accounts for our continuing operations for the three and nine months ended September 27, 2020 (in thousands).
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| Balance at December 31, 2019 | $ | |||||||
| Adoption adjustment | ||||||||
| Current period provision | ( | |||||||
| Recoveries collected | ( | |||||||
| Fx impact | ( | |||||||
| Balance at March 29, 2020 | $ | |||||||
| Current period provision | ||||||||
| Writeoffs | ( | |||||||
| Recoveries collected | ( | |||||||
| Fx impact | ||||||||
| Balance at June 28, 2020 | $ | |||||||
| Current period provision | ( | |||||||
| Writeoffs | ( | |||||||
| Fx impact | ||||||||
| Balance at September 27, 2020 | $ | |||||||
Note 8: Inventories
The major classes of inventories were as follows:
| September 27, 2020 | December 31, 2019 | ||||||||||
| (In thousands) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Gross inventories | |||||||||||
| Excess and obsolete reserves | ( | ( | |||||||||
| Net inventories | $ | $ | |||||||||
Note 9: Leases
We have operating and finance leases for properties, including manufacturing facilities, warehouses, and office space; as well as vehicles and certain equipment. We make certain judgments in determining whether a contract contains a lease in accordance with ASU 2016-02. Our leases have remaining lease terms of less than 1 year to 16 years; some of which include extension and termination options for an additional 15 years or within 1 year, respectively. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably certain as of the commencement date of the lease. Our lease agreements do not contain any material residual value guarantees or material variable lease payments.
We have entered into various short-term operating leases with an initial term of twelve months or less. These leases are not recorded on our balance sheet, and for the three and nine months ended September 27, 2020 and September 29, 2019, the rent expense for short-term leases was not material.
We have certain property and equipment lease contracts that may contain lease and non-lease components, and we have elected to utilize the practical expedient to account for these components together as a single combined lease component.
As the rate implicit in most of our leases is not readily determinable, we use the incremental borrowing rate to determine the present value of the lease payments, which is unique to each leased asset, and is based upon the term of the lease, commencement date of the lease, local currency of the leased asset, and the credit rating of the legal entity leasing the asset.
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The components of lease expense were as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Finance lease cost | ||||||||||||||||||||||||||
| Amortization of right-of-use asset | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest on lease liabilities | ||||||||||||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
Supplemental cash flow information related to leases was as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating cash flows from finance leases | ||||||||||||||||||||||||||
| Financing cash flows from finance leases | ||||||||||||||||||||||||||
Supplemental balance sheet information related to leases was as follows:
| September 27, 2020 | December 31, 2019 | |||||||||||||
| (In thousands, except lease term and discount rate) | ||||||||||||||
| Operating leases: | ||||||||||||||
Total operating lease right-of-use assets | $ | $ | ||||||||||||
| Accrued liabilities | $ | $ | ||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Total operating lease liabilities | $ | $ | ||||||||||||
| Finance leases: | ||||||||||||||
| Other long-lived assets, at cost | $ | $ | ||||||||||||
| Accumulated depreciation | ( | ( | ||||||||||||
| Other long-lived assets, net | $ | $ | ||||||||||||
| Weighted Average Remaining Lease Term | ||||||||||||||
| Operating leases | ||||||||||||||
| Finance leases | ||||||||||||||
| Weighted Average Discount Rate | ||||||||||||||
| Operating leases | % | % | ||||||||||||
| Finance leases | % | % | ||||||||||||
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| 2020 | $ | |||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
The following table summarizes maturities of lease liabilities as of December 31, 2019 (in thousands):
| 2020 | $ | |||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Note 10: Long-Lived Assets
Depreciation and Amortization Expense
We recognized depreciation expense of $10.5 million and $31.1 million in the three and nine months ended September 27, 2020, respectively. We recognized depreciation expense of $10.0 million and $30.0 million in the three and nine ended September 29, 2019, respectively.
We recognized amortization expense related to our intangible assets of $16.6 million and $49.6 million in the three and nine months ended September 27, 2020, respectively. We recognized amortization expense related to our intangible assets of $19.1 million and $56.5 million in the three and nine ended September 29, 2019, respectively.
Interim Impairment Test
Due to equity market conditions during the nine months ended September 27, 2020, we conducted an interim impairment test. We determined that the carrying values of our definite-lived assets were recoverable; therefore, we did not record any impairment charges related to these assets. Goodwill is tested for impairment at the reporting unit level, and we conducted a quantitative interim impairment test for one of our reporting units. A reporting unit is an operating segment, or a business unit one level below an operating segment if discrete financial information for that business is prepared and regularly reviewed by segment management. However, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. We determined that each of our reportable segments (Enterprise Solutions and Industrial Solutions) represents an operating segment. Within those operating segments, we have identified reporting units based on whether there is discrete financial information prepared that is regularly reviewed by segment management.
When we evaluate goodwill for impairment using a quantitative assessment, we compare the fair value of each reporting unit to its carrying value. We determine the fair value using an income approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows using growth rates and discount rates that are consistent with current market conditions in our industry. If the fair value of the reporting unit exceeds the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then we record an impairment charge based on that difference. In addition to the income approach, we calculate the fair value of our reporting units under a market approach. The market approach measures the fair value of a reporting unit through analysis of financial multiples of comparable businesses. Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or similar lines of business. Significant judgment is required when applying the market approach as there is a range of financial multiples of comparable businesses.
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Note 11: Severance, Restructuring, and Acquisition Integration Activities
Cost Reduction Program: 2019
During the fourth quarter of 2019, we began a cost reduction program to improve performance and enhance margins by streamlining the organizational structure and investing in technology to drive productivity. We recognized $0.2 million and $3.2 million of severance and other restructuring costs for this program during the three and nine months ended September 27, 2020, respectively. These costs were incurred by both the Enterprise Solutions and Industrial Solutions segments. The cost reduction program is expected to deliver an estimated $60.0 million reduction in selling, general, and administrative expenses on an annual basis, of which $40.0 million is expected to be realized in 2020, with the full benefit materializing in 2021. We expect to incur incremental costs of approximately $9.6 million for this program.
SPC, Opterna and FutureLink Integration Program: 2019
In 2019, we began a restructuring program to integrate SPC, Opterna and FutureLink with our existing businesses. The restructuring and integration activities were focused on achieving desired cost savings by consolidating existing and acquired facilities and other support functions. We recognized $0.9 million and $4.0 million of severance and other restructuring costs for this program during the three and nine months ended September 27, 2020, respectively. We recognized $3.1 million and $5.6 million of severance and other restructuring costs for this program during the three and nine months ended September 29, 2019. These costs were incurred by the Enterprise Solutions segment. We expect to incur incremental costs of approximately $0.6 million for this program.
The following table summarizes the costs by segment of the programs described above as well as other immaterial programs and acquisition integration activities during the three and nine months ended September 27, 2020 and September 29, 2019:
| Severance | Other Restructuring and Integration Costs | Total Costs | ||||||||||||||||||
| Three Months Ended September 27, 2020 | (In thousands) | |||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | |||||||||||||||||
| Industrial Solutions | ( | |||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
| Three Months Ended September 29, 2019 | ||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | |||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
| Nine Months Ended September 27, 2020 | ||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | |||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
| Nine Months Ended September 29, 2019 | ||||||||||||||||||||
| Enterprise Solutions | $ | $ | $ | |||||||||||||||||
| Industrial Solutions | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
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The other restructuring and integration costs primarily consisted of equipment transfer, costs to consolidate operating and support facilities, retention bonuses, relocation, travel, legal, and other costs. The majority of the other restructuring and integration costs related to these actions were paid as incurred or are payable within the next 60 days.
The following table summarizes the costs of the various programs described above as well as other immaterial programs and acquisition integration activities by financial statement line item in the Condensed Consolidated Statement of Operations:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | |||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Accrued Severance
The table below sets forth severance activity that occurred for the Cost Reduction Program as well as the SPC, Opterna and FutureLink Integration Program described above. The balances below are included in accrued liabilities (in thousands).
| Balance at December 31, 2019 | $ | |||||||
| New charges | ||||||||
| Cash payments | ( | |||||||
| Foreign currency translation | ( | |||||||
| Other adjustments | ( | |||||||
| Balance at March 29, 2020 | ||||||||
| New charges | ||||||||
| Cash payments | ( | |||||||
| Foreign currency translation | ( | |||||||
| Other adjustments | ( | |||||||
| Balance at June 28, 2020 | ||||||||
| New charges | ||||||||
| Cash payments | ( | |||||||
| Foreign currency translation | ( | |||||||
| Other adjustments | ( | |||||||
| Balance at September 27, 2020 | $ | |||||||
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Note 12: Long-Term Debt and Other Borrowing Arrangements
The carrying values of our long-term debt were as follows:
| September 27, 2020 | December 31, 2019 | ||||||||||
| (In thousands) | |||||||||||
| Revolving credit agreement due 2022 | $ | $ | |||||||||
| Senior subordinated notes: | |||||||||||
| Total senior subordinated notes | |||||||||||
| Less unamortized debt issuance costs | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
Revolving Credit Agreement due 2022
Our Revolving Credit Agreement provides a $400.0 million multi-currency asset-based revolving credit facility (the Revolver). The borrowing base under the Revolver includes eligible accounts receivable; inventory; and property, plant and equipment of certain of our subsidiaries in the U.S., Canada, Germany, and the Netherlands. The maturity date of the Revolver is May 16, 2022. Interest on outstanding borrowings is variable, based upon LIBOR or other similar indices in foreign jurisdictions, plus a spread that ranges from 1.25 %-1.75 %, depending upon our leverage position. We pay a commitment fee on our available borrowing capacity of 0.25 %. In the event we borrow more than 90 % of our borrowing base, we are subject to a fixed charge coverage ratio covenant.
Due to the initial uncertainties arising from the COVID-19 pandemic and out of an abundance of caution, we borrowed $190.0 million on our Revolver at the beginning of the second quarter. As a result of improving and sufficient cash flow and liquidity throughout the year, we subsequently repaid $100.0 million and the remaining $90.0 million during the second and third quarter, respectively. As of September 27, 2020, our available borrowing capacity was $265.2 million.
Senior Subordinated Notes
We have outstanding €350.0 million aggregate principal amount of 3.875 % senior subordinated notes due 2028 (the 2028 Notes). The carrying value of the 2028 Notes as of September 27, 2020 is $408.8 million. The 2028 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2028 Notes rank equal in right of payment with our senior subordinated notes due 2027, 2026, and 2025 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on March 15 and September 15 of each year.
We have outstanding €450.0 million aggregate principal amount of 3.375 % senior subordinated notes due 2027 (the 2027 Notes). The carrying value of the 2027 Notes as of September 27, 2020 is $525.6 million. The 2027 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2027 Notes rank equal in right of payment with our senior subordinated notes due 2028, 2026, and 2025 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on January 15 and July 15 of each year.
We have outstanding €200.0 million aggregate principal amount of 4.125 % senior subordinated notes due 2026 (the 2026 Notes). The carrying value of the 2026 Notes as of September 27, 2020 is $233.6 million. The 2026 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2026 Notes rank equal in right of payment with our senior subordinated notes due 2028, 2027, and 2025 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on April 15 and October 15 of each year.
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We have outstanding €300.0 million aggregate principal amount of 2.875 % senior subordinated notes due 2025 (the 2025 Notes). The carrying value of the 2025 Notes as of September 27, 2020 is $350.4 million. The 2025 Notes are guaranteed on a senior subordinated basis by our current and future domestic subsidiaries. The 2025 Notes rank equal in right of payment with our senior subordinated notes due 2028, 2027, and 2026 and with any future subordinated debt, and they are subordinated to all of our senior debt and the senior debt of our subsidiary guarantors, including our Revolver. Interest is payable semiannually on March 15 and September 15 of each year.
Fair Value of Long-Term Debt
Note 13: Net Investment Hedge
Note 14: Income Taxes
For the three and nine months ended September 27, 2020, we recognized income tax expense of $0.6 million and $3.2 million, respectively, representing an effective tax rate of 3.0 % and 7.7 %, respectively. The effective tax rates were impacted by income tax benefits for certain foreign tax credits of $0.9 million and $2.1 million in the three and nine months ended September 27, 2020, respectively. In March 2020, the Coronavirus Relief and Economic Security Act (CARES Act) was signed into law in the United States. We are still analyzing the provisions of the CARES Act to determine if there will be any impact to our income tax provision for the year.
For the three and nine months ended September 29, 2019, we recognized income tax expense of $6.1 million and $16.2 million, respectively, representing an effective tax rate of 13.7 % and 13.1 %, respectively. The effective tax rates were impacted by an income tax benefit of $5.7 million as a result of changes in our estimated valuation allowance requirement related to foreign tax credits due to the restructuring of certain foreign operations. These effective rates are also reflective of the impact of more favorable statutory tax rates applied to the earnings of these foreign operations due to the restructuring efforts.
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Note 15: Pension and Other Postretirement Obligations
The following table provides the components of net periodic benefit costs for our pension and other postretirement benefit plans:
| Pension Obligations | Other Postretirement Obligations | |||||||||||||||||||||||||
| Three Months Ended | September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ||||||||||||||||||||||||
| Amortization of prior service cost (credit) | ( | |||||||||||||||||||||||||
| Actuarial losses (gains) | ( | ( | ||||||||||||||||||||||||
Net periodic benefit cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ||||||||||||||||||||||||
| Amortization of prior service cost (credit) | ( | |||||||||||||||||||||||||
| Actuarial losses (gains) | ( | ( | ||||||||||||||||||||||||
Net periodic benefit cost | $ | $ | $ | $ | ||||||||||||||||||||||
Note 16: Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
The following table summarizes total comprehensive income (losses):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
Foreign currency translation adjustments, net of $ | ( | ( | |||||||||||||||||||||
Adjustments to pension and postretirement liability, net of $ | |||||||||||||||||||||||
| Total comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| Comprehensive loss attributable to Belden | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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| Foreign Currency Translation Component | Pension and Other Postretirement Benefit Plans | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Balance at December 31, 2019 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive loss attributable to Belden before reclassifications | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | |||||||||||||||||
| Net current period other comprehensive gain (loss) attributable to Belden | ( | ( | |||||||||||||||
| Balance at September 27, 2020 | $ | ( | $ | ( | $ | ( | |||||||||||
The following table summarizes the effects of reclassifications from accumulated other comprehensive income (loss) for the nine months ended September 27, 2020:
| Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Consolidated Statements of Operations and Comprehensive Income | ||||||||||
| (In thousands) | |||||||||||
| Amortization of pension and other postretirement benefit plan items: | |||||||||||
| Actuarial losses | $ | (1) | |||||||||
| Accumulated losses of Grass Valley disposal group | (2) | ||||||||||
| Prior service cost | (1) | ||||||||||
| Total before tax | |||||||||||
| Tax benefit | ( | ||||||||||
| Total net of tax | $ | ||||||||||
(1) The amortization of these accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit costs (see Note 15). The amounts in the table above include both continuing and discontinued operations.
Note 17: Preferred Stock
Note 18: Share Repurchase
-27-
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Belden Inc. (the Company, us, we, or our) is a global supplier of specialty networking solutions built around two global business platforms - Enterprise Solutions and Industrial Solutions. Our comprehensive portfolio of solutions enables customers to transmit and secure data, sound, and video for mission critical applications across complex enterprise and industrial environments.
We strive for operational excellence through the execution of our Belden Business System, which includes three areas of focus: Lean enterprise initiatives, our Market Delivery System, and our Talent Management System. Through operational excellence we generate free cash flow on an annual basis. We utilize the cash flow generated by our business to fuel our continued transformation and generate shareholder value. We believe our business system, balance across markets and geographies, systematic go-to-market approach, extensive portfolio of innovative solutions, commitment to Lean principles, and improving margins present a unique value proposition for shareholders.
We use a set of tools and processes that are designed to continuously improve business performance in the critical areas of quality, delivery, cost, and innovation. We consider revenue growth, Adjusted EBITDA margin, free cash flows, and return on invested capital to be our key operating performance indicators. We also seek to acquire businesses that we believe can help us achieve these objectives.
Trends and Events
The following trends and events during 2020 have had varying effects on our financial condition, results of operations, and cash flows.
Global Pandemic
On March 11, 2020, the World Health Organization (WHO) declared the outbreak of the novel coronavirus (COVID-19) a pandemic. We expect the outbreak of COVID-19 will continue to result in significant economic disruption and will continue to adversely affect our business in the future. As compared to the year ago period, we expect to continue to experience reductions in customer demand in several of our end-markets. We expect that the social distancing measures, the reduced operational status of some of our suppliers and reductions in production at certain facilities will continue to have an adverse impact on our operations, and general business uncertainty will continue to negatively impact demand in several of our end-markets in the near future.
Our foremost focus has been on the health and safety of our employees and customers. In response to the outbreak, we have modified practices at our manufacturing locations and offices to adhere to guidance from the WHO, the U.S. Centers for Disease Control and Prevention and other local health and governmental authorities with respect to social distancing, physical separation, personal protective equipment and sanitization. We are approaching our response to this outbreak with a recognition that we provide essential and important products and services upon which our customers rely upon daily to support critical functions. Therefore, most, but not all, of our U.S. and global facilities have remained substantially operational during the outbreak while implementing enhanced safety protocols designed to protect the well-being of our employees.
The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time. We will continue to proactively respond to the situation and may take further actions that alter our business operations as may be required by governmental authorities, or that we determine are in the best interests of our employees and customers.
Foreign currency
Our exposure to currency rate fluctuations primarily relates to exchange rate movements between the U.S. dollar and the euro, Canadian dollar, Hong Kong dollar, Chinese yuan, Japanese yen, Mexican peso, Australian dollar, British pound, Indian rupee, and Brazilian real. Generally, as the U.S. dollar strengthens against these foreign currencies, our revenues and earnings are negatively impacted as our foreign denominated revenues and earnings are translated into U.S. dollars at a lower rate. Conversely, as the U.S. dollar weakens against foreign currencies, our revenues and earnings are positively impacted. Approximately 43% of our consolidated revenues during the quarter ended September 27, 2020 were to customers outside of the U.S.
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In addition to the translation impact described above, currency rate fluctuations have an economic impact on our financial results. As the U.S. dollar strengthens or weakens against foreign currencies, it results in a relative price increase or decrease for certain of our products that are priced in U.S. dollars in a foreign location.
Commodity prices
Our operating results can be affected by changes in prices of commodities, primarily copper and compounds, which are components in some of the products we sell. Generally, as the costs of inventory purchases increase due to higher commodity prices, we raise selling prices to customers to cover the increase in costs, resulting in higher sales revenue but a lower gross profit percentage. Conversely, a decrease in commodity prices would result in lower sales revenue but a higher gross profit percentage. Selling prices of our products are affected by many factors, including end market demand, capacity utilization, overall economic conditions, and commodity prices. Importantly, however, there is no exact measure of the effect of changing commodity prices, as there are thousands of transactions in any given quarter, each of which has various factors involved in the individual pricing decisions. Therefore, all references to the effect of copper prices or other commodity prices are estimates.
Channel Inventory
Our operating results also can be affected by the levels of Belden products purchased and held as inventory by our channel partners and customers. Our channel partners and customers purchase and hold the products they bought from us in their inventory in order to meet the service and on-time delivery requirements of their customers. Generally, as our channel partners and customers change the level of products they buy from us and hold in their inventory, it impacts our revenues. Comparisons of our results between periods can be impacted by changes in the levels of channel inventory. We use information provided to us by our channel partners and make certain assumptions based on our sales to them to determine the amount of products they bought from us and hold in their inventory. As such, all references to the effect of channel inventory changes are estimates.
Market Growth and Market Share
The markets in which we operate can generally be characterized as highly competitive and highly fragmented, with many players. We monitor available data regarding market growth, including independent market research reports, publicly available indices, and the financial results of our direct and indirect peer companies, in order to estimate the extent to which our served markets grew or contracted during a particular period. We expect that our unit sales volume will increase or decrease consistently with the market growth rate. Our strategic goal is to utilize our Market Delivery System to target faster growing geographies, applications, and trends within our end markets, in order to achieve growth that is higher than the general market growth rate. To the extent that we exceed the market growth rates, we consider it to be the result of capturing market share.
Earnout Consideration Payment
During the nine months ended September 27, 2020, we paid the sellers of Snell Advanced Media (SAM) the full earnout consideration of $31.4 million in cash in accordance with the purchase agreement. SAM was acquired on February 8, 2018 and was included in the Grass Valley disposal group. See Note 1.
Grass Valley Disposal
During the fourth quarter of 2019, we committed to a plan to sell Grass Valley, and at such time, met all of the criteria to classify the assets and liabilities of this business as held for sale. As a result, the Grass Valley disposal group, which was included in our Enterprise Solutions segment, has been reported within discontinued operations as of such time, and the comparable prior period information has been recast accordingly to exclude the Grass Valley disposal group from continuing operations, with the exception of the Condensed Consolidated Cash Flow Statements. The Grass Valley disposal group excludes certain Grass Valley pension plans retained by Belden. Prior to the divestiture, we wrote down the carrying value of Grass Valley and recognized asset impairments totaling $113.0 million during the nine months ended September 27, 2020.
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We completed the sale of Grass Valley to Black Dragon Capital on July 2, 2020 and recognized a gain of $2.7 million, net of a $2.0 million income tax benefit. The terms of the sale included gross cash consideration of $120.0 million, or approximately $59.5 million net of cash delivered with the business and certain preliminary working capital adjustments. The sale also included deferred consideration consisting of a $175.0 million seller’s note that matures in 2025, up to $88 million in PIK interest on the seller’s note, and $178.0 million in potential earnout payments. Based upon a third party valuation specialist, the estimated fair value of the seller’s note is $34.9 million, which we recorded in Other Long-Lived Assets. As part of the transaction, we also invested $3.0 million for a 9% equity interest in Grass Valley with the right to put the equity back to Black Dragon Capital at any time on or before October 31, 2020. On October 23, 2020, we notified Black Dragon Capital that we are exercising our right to put the equity back to them. We expect to finalize the sale of our equity interest during the fourth quarter of 2020. We deconsolidated Grass Valley as of July 2, 2020 and are accounting for our equity interest under the cost method. We are also performing certain services for Grass Valley under a transition services agreement, which totaled $1.0 million during the three months ended September 27, 2020. See Note 4.
Segment Transfer
Effective January 1, 2020, we transferred our West Penn Wire business and multi-conductor product lines from the Enterprise Solutions segment to the Industrial Solutions segment as a result of a shift in responsibilities among the segments. We have recast the prior period segment information to conform to the change in the composition of reportable segments. See Note 5.
Cost Reduction Program
During the fourth quarter of 2019, we began a cost reduction program to improve performance and enhance margins by streamlining the organizational structure and investing in technology to drive productivity. We recognized $0.2 million and $3.2 million of severance and other restructuring costs for this program during the three and nine months ended September 27, 2020, respectively. The cost reduction program is expected to deliver an estimated $60.0 million reduction in selling, general, and administrative expenses on an annual basis, of which $40.0 million is expected to be realized in 2020, with the full benefit materializing in 2021. We expect to incur incremental costs of approximately $9.6 million for this program. See Note 11.
SPC, Opterna and FutureLink Integration Program
In 2019, we began a restructuring program to integrate SPC, Opterna and FutureLink with our existing businesses. The restructuring and integration activities are focused on achieving desired cost savings by consolidating existing and acquired facilities and other support functions. We recognized $0.9 million and $4.0 million of severance and other restructuring costs for this program during the three and nine months ended September 27, 2020, respectively. These costs were incurred by the Enterprise Solutions segment. We expect to incur incremental costs of approximately $0.6 million for this program. See Note 11.
Revolving Credit Agreement
Due to the initial uncertainties arising from the COVID-19 pandemic and out of an abundance of caution, we borrowed $190.0 million on our Revolver at the beginning of the second quarter. As a result of improving and sufficient cash flow and liquidity throughout the year, we subsequently repaid $100.0 million and the remaining $90.0 million during the second and third quarter, respectively. Our Revolving Credit Agreement provides a $400.0 million multi-currency asset-based revolving credit facility and matures on May 16, 2022. Interest on outstanding borrowings is variable, based upon LIBOR or other similar indices in foreign jurisdictions, plus a spread that ranges from 1.25%-1.75%, depending upon our leverage position. As of September 27, 2020, our available borrowing capacity was $265.2 million. See Note 12.
Share Repurchase Program
In 2018, our Board of Directors authorized a share repurchase program, which allows us to purchase up to $300.0 million of our common stock through open market repurchases, negotiated transactions, or other means, in accordance with applicable securities laws and other restrictions. This program is funded with cash on hand and cash flows from operating activities. During the nine months ended September 27, 2020, we repurchased 1.0 million shares of our common stock under the share repurchase program for an aggregate cost of $35.0 million at an average price per share of $35.83. See Note 18.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows that are or would be considered material to investors.
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Critical Accounting Policies
During the nine months ended September 27, 2020:
•We did not change any of our existing critical accounting policies from those listed in our 2019 Annual Report on Form 10-K other than updating our accounting policies for the adoption of ASU 2016-13;
•No existing accounting policies became critical accounting policies because of an increase in the materiality of associated transactions or changes in the circumstances to which associated judgments and estimates relate; and
•There were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed.
Results of Operations
Consolidated Income before Taxes
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | % Change | September 27, 2020 | September 29, 2019 | % Change | ||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Revenues | $ | 475,839 | $ | 533,098 | (10.7) | % | $ | 1,364,176 | $ | 1,581,590 | (13.7) | % | |||||||||||||||||||||||
| Gross profit | 167,592 | 198,805 | (15.7) | % | 488,033 | 590,733 | (17.4) | % | |||||||||||||||||||||||||||
| Selling, general and administrative expenses | (85,037) | (98,245) | (13.4) | % | (275,129) | (298,654) | (7.9) | % | |||||||||||||||||||||||||||
| Research and development expenses | (30,324) | (23,992) | 26.4 | % | (81,633) | (72,014) | 13.4 | % | |||||||||||||||||||||||||||
| Amortization of intangibles | (16,104) | (19,026) | (15.4) | % | (48,306) | (56,258) | (14.1) | % | |||||||||||||||||||||||||||
| Operating income | 36,127 | 57,542 | (37.2) | % | 82,965 | 163,807 | (49.4) | % | |||||||||||||||||||||||||||
| Interest expense, net | (15,607) | (14,002) | 11.5 | % | (43,188) | (41,951) | 2.9 | % | |||||||||||||||||||||||||||
| Non-operating pension benefit | 680 | 544 | 25.0 | % | 2,079 | 1,684 | 23.5 | % | |||||||||||||||||||||||||||
| Income from continuing operations before taxes | 21,200 | 44,084 | (51.9) | % | 41,856 | 123,540 | (66.1) | % | |||||||||||||||||||||||||||
Revenues decreased $57.3 million and $217.4 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 due to the following factors:
•Lower sales volume resulted in a $67.4 million and $232.0 million decrease in revenues in the three and nine months ended September 27, 2020, respectively.
•Copper prices had a $3.9 million favorable and $6.9 million unfavorable impact on revenues in the three and nine months ended September 27, 2020, respectively.
•Currency translation had a $1.3 million favorable and $7.3 million unfavorable impact on revenues in the three and nine months ended September 27, 2020, respectively.
•Acquisitions contributed an estimated $4.9 million and $28.8 million in revenues in the three and nine months ended September 27, 2020, respectively.
Gross profit decreased $31.2 million and $102.7 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 due to the decreases in revenues discussed above as well as unfavorable mix; partially offset by the impact of acquisitions.
Selling, general and administrative expenses decreased $13.2 million and $23.5 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019. For the three months ended September 27, 2020, benefits realized from our Cost Reduction Program coupled with productivity improvement initiatives and a decrease in restructuring charges contributed an estimated $13.4 million and $1.0 million decline in selling, general and administrative expenses, respectively; partially offset by a $1.2 million increase from acquisitions. For the nine months ended September 27, 2020, benefits realized from our Cost Reduction Program coupled with productivity improvement initiatives and currency translation contributed an estimated $33.3 million and $1.3 million decline in selling, general and administrative expenses, respectively; partially offset by a $6.3 million and $4.8 million increase from acquisitions and restructuring charges, respectively.
Research and development expenses increased $6.3 million and $9.6 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 primarily due to increased investments in R&D projects as we continue our commitment to growth initiatives.
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Amortization of intangibles decreased $2.9 million and $8.0 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 primarily due to certain intangible assets becoming fully amortized.
Operating income decreased $21.4 million and $80.8 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 primarily as a result of the decline in gross profit discussed above.
Net interest expense increased $1.6 million and $1.2 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019. The increase is primarily the result of interest accrued on the Revolver borrowings during the three and nine months ended September 27, 2020. During the second quarter, we borrowed $190.0 million on our Revolver and then subsequently repaid $100.0 million and the remaining $90.0 million during the second and third quarter, respectively. See Note 12.
Income from continuing operations before taxes decreased $22.9 million and $81.7 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 primarily due to the decline in operating income discussed above.
Income Taxes
| Three Months Ended | % | Nine Months Ended | % | ||||||||||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | Change | September 27, 2020 | September 29, 2019 | Change | ||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Income before taxes | $ | 21,200 | $ | 44,084 | (51.9) | % | $ | 41,856 | $ | 123,540 | (66.1) | % | |||||||||||||||||||||||
| Income tax expense | 631 | 6,053 | (89.6) | % | 3,223 | 16,179 | (80.1) | % | |||||||||||||||||||||||||||
| Effective tax rate | 3.0 | % | 13.7 | % | 7.7 | % | 13.1 | % | |||||||||||||||||||||||||||
For the three and nine months ended September 27, 2020, we recognized income tax expense of $0.6 million and $3.2 million, respectively, representing an effective tax rate of 3.0% and 7.7%, respectively. The effective tax rates were impacted by income tax benefits for certain foreign tax credits of $0.9 million and $2.1 million in the three and nine months ended September 27, 2020, respectively. In March 2020, the Coronavirus Relief and Economic Security Act (CARES Act) was signed into law in the United States. We are still analyzing the provisions of the CARES Act to determine if there will be any impact to our income tax provision for the year.
For the three and nine months ended September 29, 2019, we recognized income tax expense of $6.1 million and $16.2 million, respectively, representing an effective tax rate of 13.7% and 13.1%, respectively. The effective tax rates were impacted by an income tax benefit of $5.7 million as a result of changes in our estimated valuation allowance requirement related to foreign tax credits due to the restructuring of certain foreign operations. These effective rates were also reflective of the impact of more favorable statutory tax rates applied to the earnings of these foreign operations due to the restructuring efforts.
Consolidated Adjusted Revenues and Adjusted EBITDA
| Three Months Ended | % | Nine Months Ended | % | ||||||||||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | Change | September 27, 2020 | September 29, 2019 | Change | ||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Adjusted Revenues | $ | 475,839 | $ | 533,098 | (10.7) | % | $ | 1,364,176 | $ | 1,581,590 | (13.7) | % | |||||||||||||||||||||||
| Adjusted EBITDA | 65,252 | 90,037 | (27.5) | % | 175,237 | 258,044 | (32.1) | % | |||||||||||||||||||||||||||
| as a percent of adjusted revenues | 13.7 | % | 16.9 | % | 12.8 | % | 16.3 | % | |||||||||||||||||||||||||||
Adjusted Revenues decreased $57.3 million and $217.4 million in the three and nine months ended September 27, 2020 from the comparable periods of 2019 due to the following factors:
•Lower sales volume resulted in a $67.4 million and $232.0 million decrease in revenues in the three and nine months ended September 27, 2020, respectively.
•Copper prices had a $3.9 million favorable and $6.9 million unfavorable impact on revenues in the three and nine months ended September 27, 2020, respectively.
•Currency translation had a $1.3 million favorable and $7.3 million unfavorable impact on revenues in the three and nine months ended September 27, 2020, respectively.
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•Acquisitions contributed an estimated $4.9 million and $28.8 million in revenues in the three and nine months ended September 27, 2020, respectively.
Adjusted EBITDA decreased $24.8 million and $82.8 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 primarily as a result of the decrease in Adjusted Revenues discussed above, partially offset by the benefits realized from our SG&A Cost Reduction Program. See Note 11.
Use of Non-GAAP Financial Information
Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA margin, and free cash flow are non-GAAP financial measures. In addition to reporting financial results in accordance with accounting principles generally accepted in the United States, we provide non-GAAP operating results adjusted for certain items, including: asset impairments; accelerated depreciation expense due to plant consolidation activities; purchase accounting effects related to acquisitions, such as the adjustment of acquired inventory and deferred revenue to fair value, and transaction costs; severance, restructuring, and acquisition integration costs; gains (losses) recognized on the disposal of businesses and tangible assets; amortization of intangible assets; gains (losses) on debt extinguishment; certain revenues and gains (losses) from patent settlements; discontinued operations; and other costs. We adjust for the items listed above in all periods presented, unless the impact is clearly immaterial to our financial statements. When we calculate the tax effect of the adjustments, we include all current and deferred income tax expense commensurate with the adjusted measure of pre-tax profitability.
We utilize the adjusted results to review our ongoing operations without the effect of these adjustments and for comparison to budgeted operating results. We believe the adjusted results are useful to investors because they help them compare our results to previous periods and provide important insights into underlying trends in the business and how management oversees our business operations on a day-to-day basis. As an example, we adjust for the purchase accounting effect of recording deferred revenue at fair value in order to reflect the revenues that would have otherwise been recorded by acquired businesses had they remained as independent entities. We believe this presentation is useful in evaluating the underlying performance of acquired companies. Similarly, we adjust for other acquisition-related expenses, such as amortization of intangibles and other impacts of fair value adjustments because they generally are not related to the acquired business' core business performance. As an additional example, we exclude the costs of restructuring programs, which can occur from time to time for our current businesses and/or recently acquired businesses. We exclude the costs in calculating adjusted results to allow us and investors to evaluate the performance of the business based upon its expected ongoing operating structure. We believe the adjusted measures, accompanied by the disclosure of the costs of these programs, provides valuable insight.
Adjusted results should be considered only in conjunction with results reported according to accounting principles generally accepted in the United States. The following tables reconcile our GAAP results to our non-GAAP financial measures:
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| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | September 27, 2020 | September 29, 2019 | ||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| GAAP and adjusted revenues | $ | 475,839 | $ | 533,098 | $ | 1,364,176 | $ | 1,581,590 | |||||||||||||||
| GAAP net income (loss) | $ | 17,081 | $ | (297,015) | $ | (62,019) | $ | (229,547) | |||||||||||||||
| Loss from discontinued operations, net of tax | 6,231 | 335,046 | 103,395 | 336,908 | |||||||||||||||||||
| Gain on disposal of discontinued operations, net of tax | (2,743) | — | (2,743) | — | |||||||||||||||||||
| Amortization of intangible assets | 16,104 | 19,026 | 48,306 | 56,258 | |||||||||||||||||||
| Interest expense, net | 15,607 | 14,002 | 43,188 | 41,951 | |||||||||||||||||||
| Depreciation expense | 10,455 | 9,979 | 31,069 | 29,990 | |||||||||||||||||||
| Severance, restructuring, and acquisition integration costs (1) | 1,357 | 3,047 | 9,448 | 5,566 | |||||||||||||||||||
| Income tax expense | 631 | 6,053 | 3,223 | 16,179 | |||||||||||||||||||
| Amortization of software development intangible assets | 529 | 85 | 1,245 | 207 | |||||||||||||||||||
| Purchase accounting effects related to acquisitions (2) | — | (186) | 125 | 532 | |||||||||||||||||||
| Adjusted EBITDA | $ | 65,252 | $ | 90,037 | $ | 175,237 | $ | 258,044 | |||||||||||||||
| GAAP net income (loss) margin | 3.6 | % | (55.7) | % | (4.5) | % | (14.5) | % | |||||||||||||||
| Adjusted EBITDA margin | 13.7 | % | 16.9 | % | 12.8 | % | 16.3 | % | |||||||||||||||
(1) See Note 11, Severance, Restructuring, and Acquisition Integration Activities, for details.
(2) During the nine months ended September 27, 2020, we recognized cost of sales related to purchase accounting adjustments of acquired inventory to fair value for the SPC acquisition. During the nine months ended September 29, 2019, we recognized expenses related to the earnout consideration for the SAM acquisition, and during the three and nine months ended September 29, 2019, we recognized cost of sales for the adjustment of acquired inventory to fair value for the Opterna and FutureLink acquisitions.
Segment Results of Operations
For additional information regarding our segment measures, see Note 5 to the Condensed Consolidated Financial Statements.
Enterprise Solutions
| Three Months Ended | % | Nine Months Ended | % | ||||||||||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | Change | September 27, 2020 | September 29, 2019 | Change | ||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Segment Revenues | $ | 229,097 | $ | 247,236 | (7.3) | % | $ | 644,684 | $ | 699,644 | (7.9) | % | |||||||||||||||||||||||
| Segment EBITDA | 26,250 | 35,868 | (26.8) | % | 73,193 | 93,074 | (21.4) | % | |||||||||||||||||||||||||||
| as a percent of segment revenues | 11.5 | % | 14.5 | % | 11.4 | % | 13.3 | % | |||||||||||||||||||||||||||
Enterprise Solutions revenues decreased $18.1 million and $55.0 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019. The decrease in revenues in the three months ended September 27, 2020 was primarily due to decreases in volume of $24.9 million partially offset by acquisitions, higher copper prices, and favorable currency translation of $4.9 million, $1.4 million, and $0.5 million, respectively. For the nine months ended September 27, 2020, decreases in volume, lower copper prices, and unfavorable currency translation contributed $79.2 million, $3.0 million, and $1.6 million, respectively, to the decline in revenues; partially offset by acquisitions which grew revenues by $28.8 million over the year ago period.
Enterprise Solutions EBITDA decreased $9.6 million and $19.9 million in the three and nine months ended September 27, 2020, respectively, compared to the year ago periods primarily as a result of the decrease in revenues discussed above, partially offset by the benefits realized from our SG&A Cost Reduction Program.
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Industrial Solutions
| Three Months Ended | % | Nine Months Ended | % | ||||||||||||||||||||||||||||||||
| September 27, 2020 | September 29, 2019 | Change | September 27, 2020 | September 29, 2019 | Change | ||||||||||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||||||||||||||
| Segment Revenues | $ | 246,742 | $ | 285,862 | (13.7) | % | $ | 719,492 | $ | 881,946 | (18.4) | % | |||||||||||||||||||||||
| Segment EBITDA | 38,391 | 54,849 | (30.0) | % | 100,367 | 165,257 | (39.3) | % | |||||||||||||||||||||||||||
| as a percent of segment revenues | 15.6 | % | 19.2 | % | 13.9 | % | 18.7 | % | |||||||||||||||||||||||||||
Industrial Solutions revenues decreased $39.1 million and $162.5 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019. The decrease in revenues in the three months ended September 27, 2020 was primarily due to decreases in volume of $42.4 million partially offset by higher copper prices and favorable currency translation of $2.5 million and $0.8 million, respectively. For the nine months ended September 27, 2020, decreases in volume, unfavorable currency translation, and lower copper prices contributed $152.9 million, $5.7 million, and $3.9 million, respectively, to the decline in revenues.
Industrial Solutions EBITDA decreased $16.5 million and $64.9 million in the three and nine months ended September 27, 2020, respectively, from the comparable periods of 2019 primarily as a result of the decline in revenues discussed above and increased investments in R&D projects as we continue our commitment to growth initiatives, partially offset by the benefits realized from our SG&A Cost Reduction Program.
Liquidity and Capital Resources
Significant factors affecting our cash liquidity include (1) cash from operating activities, (2) disposals of businesses and tangible assets, (3) cash used for acquisitions, restructuring actions, capital expenditures, share repurchases, dividends, and senior subordinated note repurchases, and (4) our available credit facilities and other borrowing arrangements. We expect our operating activities to generate cash in 2020 and believe our sources of liquidity are sufficient to fund current working capital requirements, capital expenditures, contributions to our retirement plans, share repurchases, senior subordinated note repurchases, quarterly dividend payments, and our short-term operating strategies. However, we may require external financing in the event we complete a significant acquisition. Our ability to continue to fund our future needs from business operations could be affected by many factors, including, but not limited to: economic conditions worldwide, customer demand, competitive market forces, customer acceptance of our product mix, and commodities pricing.
The following table is derived from our Condensed Consolidated Cash Flow Statements and includes the results and cash flow activity of Grass Valley through the disposal date of July 2, 2020 consistent with the Condensed Consolidated Cash Flow Statements:
| Nine Months Ended | |||||||||||
| September 27, 2020 | September 29, 2019 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by (used for): | |||||||||||
| Operating activities | $ | 38,689 | $ | 89,517 | |||||||
| Investing activities | (3,078) | (125,000) | |||||||||
| Financing activities | (72,585) | (84,448) | |||||||||
| Effects of currency exchange rate changes on cash and cash equivalents | 2,586 | (3,937) | |||||||||
| Decrease in cash and cash equivalents | (34,388) | (123,868) | |||||||||
| Cash and cash equivalents, beginning of period | 425,885 | 420,610 | |||||||||
| Cash and cash equivalents, end of period | $ | 391,497 | $ | 296,742 | |||||||
Operating cash flows were a source of cash of $38.7 million and $89.5 million in the nine months ended September 27, 2020 and September 29, 2019, respectively. Operating cash flows declined as compared to the year ago period primarily due to the decreases in revenues and income discussed above.
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Net cash used for investing activities totaled $3.1 million in the nine months ended September 27, 2020, compared to $125.0 million in the nine months ended September 29, 2019. Investing activities for the nine months ended September 27, 2020 included capital expenditures of $56.8 million compared to $74.1 million in the comparable period of 2019. The nine months ended September 27, 2020 also included proceeds of $50.1 million, $3.1 million, and $0.6 million from the sale of the Grass Valley disposal group, the sale of tangible property, and a working capital adjustment related to the SPC acquisition. The nine months ended September 29, 2019 also included payments, net of cash acquired of $51.0 million primarily for the acquisition of Opterna.
Net cash used for financing activities totaled $72.6 million for the nine months ended September 27, 2020, compared to $84.4 million for the nine months ended September 29, 2019. Financing activities for the nine months ended September 27, 2020 included borrowings on our revolver of $190.0 million, repayments of our revolver borrowings of $190.0 million, payments under our share repurchase program of $35.0 million, earnout consideration payments of $29.3 million, cash dividend payments of $6.8 million, and net payments related to share based compensation activities of $1.3 million. Financing activities for the nine months ended September 29, 2019 included payments under our share repurchase program of $50.0 million, cash dividend payments of $32.2 million, and net payments related to share based compensation activities of $2.1 million.
Our cash and cash equivalents balance was $391.5 million as of September 27, 2020. Of this amount, $215.7 million was held outside of the U.S. in our foreign operations. Substantially all of the foreign cash and cash equivalents are readily convertible into U.S. dollars or other foreign currencies. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and accordingly, no provision for any withholding taxes has been recorded. Upon distribution of those earnings in the form of dividends or otherwise, we may be subject to withholding taxes payable to the respective foreign countries.
Our outstanding debt obligations as of September 27, 2020 consisted of $1,518.5 million of senior subordinated notes. Additional discussion regarding our various borrowing arrangements is included in Note 12 to the Condensed Consolidated Financial Statements.
Forward-Looking Statements
Statements in this report other than historical facts are “forward-looking statements” made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding future financial performance (including revenues, expenses, earnings, margins, cash flows, dividends, capital expenditures and financial condition), plans and objectives, and related assumptions. These forward-looking statements reflect management’s current beliefs and expectations and are not guarantees of future performance. Actual results may differ materially from those suggested by any forward-looking statements based on a number of factors. These factors include, among others, those set forth in Part II, Item 1A and in other documents that we file with the SEC.
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Item 3: Quantitative and Qualitative Disclosures about Market Risks
The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal amounts by expected maturity dates and fair values as of September 27, 2020.
| Principal Amount by Expected Maturity | Fair | ||||||||||||||||||||||
| 2020 | Thereafter | Total | Value | ||||||||||||||||||||
| (In thousands, except interest rates) | |||||||||||||||||||||||
| €350.0 million fixed-rate senior subordinated notes due 2028 | $ | — | $ | 408,835 | $ | 408,835 | $ | 406,088 | |||||||||||||||
| Average interest rate | 3.875 | % | |||||||||||||||||||||
| €450.0 million fixed-rate senior subordinated notes due 2027 | $ | — | $ | 525,645 | $ | 525,645 | $ | 517,760 | |||||||||||||||
| Average interest rate | 3.375 | % | |||||||||||||||||||||
| €200.0 million fixed-rate senior subordinated notes due 2026 | $ | — | $ | 233,620 | $ | 233,620 | $ | 237,005 | |||||||||||||||
| Average interest rate | 4.125 | % | |||||||||||||||||||||
| €300.0 million fixed-rate senior subordinated notes due 2025 | $ | — | $ | 350,430 | $ | 350,430 | $ | 339,325 | |||||||||||||||
| Average interest rate | 2.875 | % | |||||||||||||||||||||
| Total | $ | 1,518,530 | $ | 1,500,178 | |||||||||||||||||||
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Item 7A of our 2019 Annual Report on Form 10-K provides information as to the practices and instruments that we use to manage market risks. There were no material changes in our exposure to market risks since December 31, 2019, and our debt is fixed at an average interest rate of 3.5% with no maturities until 2025 to 2028. We have no maintenance covenants on our outstanding debt. Our only covenant is an incurrence covenant, which limits our ability to take on additional debt if EBITDA drops below a certain threshold.
Item 4: Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1: Legal Proceedings
SEC Investigation - As disclosed in our Current Report on Form 8-K filed with the SEC on December 3, 2018, we are fully cooperating with an SEC investigation related to the material weakness in internal controls over financial reporting as of December 31, 2017 disclosed in our 2017 Form 10-K. We continue to believe that the outcome of the investigation will not have a material adverse effect on the Company.
We are a party to various other legal proceedings and administrative actions that are incidental to our operations. In our opinion, the proceedings and actions in which we are involved should not, individually or in the aggregate, have a material adverse effect on our financial condition, operating results, or cash flows. However, since the trends and outcome of this litigation are inherently uncertain, we cannot give absolute assurance regarding the future resolution of such litigation, or that such litigation may not become material in the future.
Item 1A: Risk Factors
There have been no material changes with respect to risk factors as previously disclosed in our Form 8-K filed on June 12, 2020. There may be additional risks that impact our business that we currently do not recognize as, or that are not currently, material to our business.
Item 6: Exhibits
Exhibits
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
| Exhibit 101.DEF | Definition Linkbase Document | |||||||
| Exhibit 101.PRE | Presentation Linkbase Document | |||||||
| Exhibit 101.LAB | Labels Linkbase Document | |||||||
| Exhibit 101.CAL | Calculation Linkbase Document | |||||||
| Exhibit 101.SCH | Schema Document | |||||||
| Exhibit 101.INS | Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BELDEN INC. | |||||||||||||||||
| Date: | November 2, 2020 | By: | /s/ Roel Vestjens | ||||||||||||||
| Roel Vestjens | |||||||||||||||||
| President and Chief Executive Officer | |||||||||||||||||
| Date: | November 2, 2020 | By: | /s/ Henk Derksen | ||||||||||||||
| Henk Derksen | |||||||||||||||||
| Senior Vice President, Finance, and Chief Financial Officer | |||||||||||||||||
| Date: | November 2, 2020 | By: | /s/ Douglas R. Zink | ||||||||||||||
| Douglas R. Zink | |||||||||||||||||
| Vice President and Chief Accounting Officer | |||||||||||||||||
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Exhibit 31.1
CERTIFICATE PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Roel Vestjens, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Belden Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which the statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 2, 2020
| /s/ Roel Vestjens | ||
| Roel Vestjens | ||
| President and Chief Executive Officer | ||
Exhibit 31.2
CERTIFICATE PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Henk Derksen, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Belden Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which the statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 2, 2020
| /s/ Henk Derksen | ||
Henk Derksen | ||
| Senior Vice President, Finance, and Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Belden Inc. (the “Company”) on Form 10-Q for the period ended September 27, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roel Vestjens, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Roel Vestjens
Roel Vestjens
President and Chief Executive Officer
November 2, 2020
Exhibit 32.2
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Belden Inc. (the “Company”) on Form 10-Q for the period ended September 27, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Henk Derksen, Senior Vice President, Finance, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Henk Derksen
Henk Derksen
Senior Vice President, Finance, and Chief Financial Officer
November 2, 2020