Belden Inc. — 2013 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2013; it is an annual report, not a standalone fourth-quarter filing. Belden supplies signal-transmission products and systems through four global platforms: Broadcast, Enterprise Connectivity, Industrial Connectivity, and Industrial IT. The company reorganized into these reportable segments during 2013. Approximately 50% of sales were outside the United States.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $2,069.2 million | $1,840.7 million |
| Gross profit / gross margin | $704.4 million / 34.0% | $566.6 million / 30.8% |
| Operating income / operating margin | $201.3 million / 9.7% | $108.5 million / 5.9% |
| Income from continuing operations | $104.7 million; diluted EPS $2.34 | $43.2 million; diluted EPS $0.94 |
| Net income | $103.3 million; diluted EPS $2.31 | $194.5 million; diluted EPS $4.23 |
| Cash from operating activities | $164.6 million | $139.4 million |
| Capital expenditures | $40.2 million | $41.0 million |
| Cash and cash equivalents at year-end | $613.3 million | $395.1 million |
| Total debt, including current maturities | $1,367.0 million | $1,151.2 million |
| Current assets / current liabilities | $1,195.5 million / $401.6 million | $959.6 million / $452.5 million |
Operating cash flow less capital expenditures was approximately $124.4 million in 2013, compared with $98.4 million in 2012. Year-end debt comprised $700.0 million of 5.5% notes due 2022, $413.0 million of 5.5% notes due 2023, $248.8 million of variable-rate term-loan borrowings due 2020, and $5.2 million of 9.25% notes due 2019. No revolver borrowings were outstanding; available borrowing capacity was $325 million. Cash less total debt implies net debt of approximately $753.7 million.
Fourth-quarter 2013 revenue was $509.8 million, operating income $49.2 million, income from continuing operations $23.9 million, and diluted EPS from continuing operations $0.54. Fourth-quarter 2012 revenue was $477.7 million, operating income $31.6 million, and continuing-operations income $39.5 million. The 2012 quarter included substantial discontinued-operation disposal gains, so reported net income and EPS are not directly comparable.
Material changes versus prior period
- Revenue increased 12.4%, primarily from acquisitions: Miranda and PPC, acquired in 2012, contributed $329.7 million of the 2013 increase. The 2012 sale of consumer-electronics cable operations reduced revenue by $97.8 million; lower copper costs reduced revenue by an estimated $15 million, while volume and currency added approximately $8 million and $3.6 million, respectively.
- Operating income rose 85.5%. Management attributed the improvement to acquired businesses, improved product and end-market mix, productivity and restructuring benefits, and leverage on higher revenue.
- Net income fell despite higher continuing-operations income because 2012 included a $134.5 million after-tax gain on the sale of the Thermax and Raydex business. 2012 also included a $52.5 million debt-extinguishment loss; the comparable 2013 loss was $1.6 million.
- 2013 restructuring and acquisition-related charges included $14.9 million of severance and other restructuring costs, $4.9 million of accelerated depreciation, and $6.6 million of acquired-inventory fair-value cost of sales. Intangible amortization increased to $50.8 million from $22.8 million.
- Segment revenue and operating income were: Broadcast $663.9 million and $15.1 million; Enterprise Connectivity $493.1 million and $48.8 million; Industrial Connectivity $680.6 million and $92.6 million; and Industrial IT $231.5 million and $38.4 million. Broadcast growth was acquisition-led; Enterprise revenue was nearly flat, while both industrial segments reported revenue and operating-income growth.
Outlook, commentary, risks and contingencies
- Management expected operating activities to generate cash in 2014 and considered liquidity adequate for working capital, capital expenditures, retirement contributions, dividends, and planned repurchases; significant acquisitions could require external financing. No specific revenue or EPS guidance is provided in the supplied filing text.
- Management expected minimal additional restructuring costs in 2014 from PPC integration and annualized savings of approximately $8–10 million beginning in 2014. It also stated that comparable quarterly cash dividends were anticipated.
- In February 2014, Belden submitted a binding offer of approximately $220 million for Grass Valley, a broadcast-technology provider. At filing, the offer remained subject to consultation, definitive agreement, regulatory approvals, audited financial statements, and other closing conditions; management expected a first-quarter 2014 close.
- Principal risks include economic weakness and competitive pricing; reliance on distributors (Anixter represented 14% of 2013 revenue and 16% of year-end receivables); channel inventory variability; copper and other input-cost volatility; foreign exchange and international exposure; acquisition integration and execution; technology substitution and product obsolescence; tax-rate variability; and access to financing.
- Cash held outside the United States was $226.2 million; repatriation could trigger U.S. taxes. Environmental and legal accruals were described as not material. A former Kingston, Canada property is subject to a potential soil and groundwater remediation matter; Belden did not expect a material adverse effect based on available information but noted the outcome was uncertain. The auditor gave unqualified opinions on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- How much of revenue and operating-income growth reflects sustainable organic growth versus acquisitions, and whether PPC integration delivers the stated savings.
- Debt covenants, variable-rate exposure, debt-service requirements, and the effect of the proposed Grass Valley purchase on liquidity and leverage.
- Whether distributor inventory, customer concentration, copper pricing, and weak enterprise-market demand affect future sales and margins.
- The assumptions supporting tax assets and uncertain tax positions, and any tax cost if foreign cash is repatriated.
- The resolution and potential financial exposure of the Kingston environmental matter and the remaining $3.8 million Trapeze escrow receivable.